Hotel Profits May Lose Altitude

Date: June 4 2008
Source: The Wall Street Journal
Website: http://online.wsj.com/article/SB121253549243643109.html?mod=CommercialRealEstateMain_2

Airlines are cutting back capacity, and that spells bad news for hotels, which rely on folks jetting from place to place.

Carriers are curtailing the number of flights they run in response to record-high fuel costs and slackening travel demand. American Airlines alone is planning a 12% cut by year's end.

John Arabia, analyst at Green Street Advisors, wrote in an investor note last week that he expects revenue per available room, a common hotel-industry measure, to drop 3% to 4% in 2009.

"Nimble investors are cautioned to reduce their exposure to hotels in the interim as the market digests the impact of the airlines' problems on the lodging industry," Mr. Arabia wrote.

Executives attending this week's hotel conference sponsored by New York University were understandably glum about the trend. "It will negatively affect business," said Michael Depatie, chief executive of closely held Kimpton Hotels, the operator of 43 boutique hotels.

Some were more philosophic about it. Barry Sternlicht, chief executive of Starwood Capital Group, conceded that cheap airline tickets in the past may have inadvertently subsidized the hotel industry. Meanwhile, David Kong, chief executive of Best Western International Inc., took pains to make a distinction between the hotel industry, where "people must come first," and the airlines, which he described as "one of the most hated industries."