Lodging Industry Will Experience Weakest RevPAR Performance Since Early 1990s; U.S. Economy Slows Faster Than Expected, and Consumer Confidence Declines

Real GDP growth is forecast to slow to 2.2 percent for 2001. PricewaterhouseCoopers forecasts room demand will expand by only 1.9 percent and average daily rates will increase by 3.8 percent. These are the slowest growth rates since 1993. Occupancy is expected to fall to 62.9 percent, with RevPAR growing by only 2.8 percent, just above the rate of inflation as measured by the Consumer Price Index, and the slowest growth since 1992.

"Even with the U.S. economy's performance, we believe the lodging industry will experience profit growth in 2001, but that growth of 4.6 percent to $25 billion will be the smallest since 1992," said Bjorn Hanson, Ph.D., Global Industry Leader, PricewaterhouseCoopers Hospitality & Leisure Practice.

"The industry is currently operating at a substantial premium to break-even occupancy with high profit margins following a decade of restructuring, intense focus on increasing profit margins and productivity, adoption of new technology, close partnerships with other tourism related product providers, and close Wall Street scrutiny," Hanson added.

According to Macroeconomic Advisers, real GDP is expected to grow to by 3.6 percent in 2002. During the same period, lodging RevPAR is forecast to regain some of its growth momentum. RevPAR is expected to grow by 4.3 percent in 2002. Room demand growth is expected to recover at 2.7 percent in 2002, with average daily rates growing by 3.9 percent in 2002. Occupancy will grow very slightly, by 0.2 percentage points in 2002.

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. And in September 1997, PricewaterhouseCoopers said room starts would decline in 1998.

Since the spring of 2000, PricewaterhouseCoopers has been forecasting a U.S. lodging industry slowdown in late 2000 and early 2001.

The firm's research models have recently been refined and enhanced to improve the estimation of future room starts and to enable more precise estimation of the interactions between lodging statistics and the macro economy. They also 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 the same econometric modelling 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, Africa and Asia Pacific. The group has 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.

PricewaterhouseCoopers (www.pwcglobal.com) is the world's largest professional services organisation. Drawing on the knowledge and skills of more than 150,000 people in 150 countries, we help our clients solve complex business problems and measurably enhance their ability to build value, manage risk and improve performance in an Internet-enabled world.

PricewaterhouseCoopers (www.pwcglobal.com) is the orld's largest professional services organization. Drawing on the knowledge and skills of more than 150,000 people in 150 countries, we help our clients solve complex business problems and measurably enhance their ability to build value, manage risk and improve performance in an Internet-enabled world.

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