PricewaterhouseCoopers Forecasts Further Contraction in Lodging Industry - Record Lodging RevPAR Decline Anticipated Through the Rest of 2001, Profits to Reduce to 1998 Levels, and Less Improvement Anticipated for 2002

These annual estimates reflect deterioration from a 3.4 percent RevPAR increase in the first quarter to a 3.6 percent decline in the second quarter and further to a range of 7.0 percent to 10.0 percent decline in the second half of 2001.

"Even with the record declines in RevPAR forecast, there will not be an industry aggregate loss. Profits for the year will decline to between $18 and $20 billion compared with 2000 record profit of $23.5 billion," said Bjorn Hanson, Ph.D., global industry leader, PricewaterhouseCoopers Hospitality & Leisure Practice.

Factors contributing to the RevPAR decline include: a decline in leisure travel, especially to New York; airline disruption in the short term; a reduction in corporate demand reflecting business pessimism, concerns about safety, stock and commodity markets volatility; the costs and inconvenience of increased security; and the dislocation in Lower Manhattan (if cities were measured by prime office space, Midtown Manhattan would be first, Lower Manhattan would be second).

"These are the most difficult circumstances with the greatest uncertainty for developing forecasts. We anticipate revisions, which may be substantial, as additional underlying economic forecasts and other information become available," said Dr. Hanson, "This forecast assumes no further acts against the U.S. and no large scale military action that would have an effect on travel for the rest of the year."

The pullback in travel in the first quarter of 1991, during the Persian Gulf War and the last quarter of the 1990-1991 recession, caused lodging demand to contract by 3.7 percent compared to a year earlier. The resulting 6.1 percent decline in occupancy combined with a 0.1 percent decline in ADR for the worst-ever quarterly RevPAR performance prior to 2001. The first quarter of 1991 affected the total year 1991 RevPAR, resulting in an annual decline of 2.4 percent. That experience indicates that lodging demand took a full year to recover after the Persian Gulf War.

However, when the Gulf War occurred, the industry was already operating at a loss and the loss was less in 1991 than it was the year before because the industry was already restructuring. Debt for all hotels, which includes public companies with lower leverage than others, is about four percent of revenues in 2001 compared with 14.2 percent in 1990 and 12.1 percent in 1991.

The lodging industry may resist further declines in RevPAR in 2002, but not achieve growth equal to inflation.

PricewaterhouseCoopers is the leader in econometric modeling 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.

In January 2000, PricewaterhouseCoopers forecasted 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 modeling 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.

PricewaterhouseCoopers (www.pwcglobal.com) is the world'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.

PricewaterhouseCoopers refers to the member firms of the worldwide PricewaterhouseCoopers organization.