Second Half of 2000 Will Be Strong For U.S. Lodging Industry, but Less Strong Than Second Quarter of Year, Then Slower in 2001

By next year, PricewaterhouseCoopers predicts RevPAR growth will slow even more, from 5.6 percent in 2000 to 3.5 percent in 2001 and then begin a possible favorable trend with 3.8 percent growth in 2002. The anticipated slowdown in RevPAR growth in 2001 will be primarily a result of a deceleration in the U.S. economy's GDP growth and continued high levels of room supply growth.

As forecast by Macroeconomic Advisers, the U.S. economy's real GDP growth is to decrease two percentage points from 5.1 percent in 2000 to 3.1 percent in 2001. PricewaterhouseCoopers' proprietary econometric models and actual data reveal that a 1 percent increase in real GDP leads to a 0.8 to 0.9 percent increase in room demand growth.

Room supply--while demonstrating signs of slowdown--remains strong relative to historic trends and will hinder RevPAR growth by dampening both occupancy gains and room rate increases throughout the country in 2001.

"With the strength of the U.S. economy this year, which exceeded all economists' expectations, the lodging industry enjoyed an extraordinary year, and posted the strongest RevPAR growth in four years despite the new supply in the market," said Bjorn Hanson, Ph.D., global industry leader of PricewaterhouseCoopers Hospitality & Leisure Practice. "Changes in GDP are quickly observed in lodging demand, with 40 percent of the effect occurring in the concurrent quarter."

PricewaterhouseCoopers is the leader in econometric modelling and providing reliable U.S. lodging industry forecasts that offer true industry-wide samples based on proven econometric models. The group predicted every industry turning point in the last ten years, usually two years in advance of each market move.

In July 1991, PricewaterhouseCoopers predicted a return to profitability for the industry in 1993, and average daily room rates surpassing inflation. In April 1996, PricewaterhouseCoopers issued an early alert that there would be an occupancy decline in 1997. In October 1996, the firm predicted occupancies would decline in 1997.

The firm's research models have recently been refined and enhanced to improve the estimation of future room starts, to enable more precise estimation of the interactions between lodging statistics and the marcroeconomy, and to provide reliable estimates of future lodging statistics of the U.S. at the industry segment, the regional, and the local market level.

Recently, PricewaterhouseCoopers applied similar econometric modelling techniques to the local level and can now offer forward-looking Market Outlooks. These local forecasts rely on extensive lodging data collection, empirical studies and solid econometric models to support all positions and conclusions. The Market Outlooks are patterned after the structure of the U.S. industry econometric model.

PricewaterhouseCoopers Hospitality and Leisure Group provides services including management, technology, human resources and financial consulting in North America, Europe, the Middle East and Africa. The group recently formed a partnership with Smith Travel Research.

With a worldwide network of 7000 professionals, PricewaterhouseCoopers' Financial Advisory Services ("FAS") practice provides creative solutions and ideas that increase value to clients during critical periods and when they are making important decisions that define their future. The FAS business is organized along five product lines. The Business Recovery Services, Dispute Analysis & Investigations, and Corporate Value Consulting product lines are the largest in the world. Our Dispute Analysis & Investigations product line was ranked number one in the US by readers of Euromoney's International Commercial Litigation. The Project Finance & Privatization product line was rated "Advisor of the Year" by Project Finance International, citing the firm's "phenomenal success in securing mandates." The Mergers & Acquisitions product line ranked in the top 10 globally in number of deals completed, according to Securities Data Company.

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