Ernst & Young Forecasts Growth in Global Hospitality Industry for 2006

NEW YORK | The outlook for the global hospitality industry remains positive for 2006, according to Ernst & Young LLP's latest global activity report on hospitality industry trends.

The report forecasts strong operating performance growth worldwide, with China and India leading the pack. "We are seeing major international hotel companies push ahead in emerging markets, such as China, India, and Eastern Europe, with new development programs aimed at establishing strong footholds in those fast growing geographies," said Michael Fishbin, leader of Ernst & Young's hospitality advisory practice in the United States.

"In response to the global chase for better investment fundamentals, the global hospitality industry should expect increased capital flow from U.S.-based investors to several international markets, mostly Latin America, Caribbean, Asia and Europe," said Fishbin. "And the U.S. can also expect increased investment in its own hospitality industry from investors in the Middle East."

The report suggests that the Winter Olympics (Italy), FIFA Soccer World Cup in Germany and Commonwealth Games in Australia are likely to contribute to improved performance of hospitality companies in those countries. Similarly, the run up to the 2008 Summer Olympics in China is expected to further accelerate development activity there.

The Ernst & Young report looked at recent hospitality industry developments in key regions around the world:

• Eastern Europe and Russia should offer the best opportunities for investors and developers, with opportunities for higher growth rates and lack of room inventory following the opening of those markets.
• In Latin America, the hospitality market is still recovering as the economies in the region continue to stabilize. International investors are migrating to the region to develop upscale and luxury developments. Strong growth and continued investment is expected to continue in the Caribbean in 2006. However, the threat of another active hurricane season -- and a resultant retreat in U.S. demand -- looms over the islands.
• The Asian region will be carried by strong growth in China, where tourist demand is expected to double the global growth rate. Major hotel companies are trying to expand into the Chinese markets in nearly every industry segment. Also, Japan has seen a leap in the development of luxury hotels.
• India's hospitality market should see rapid growth in the coming year as that country continues opening its markets to the world. Local and international hotel companies are actively expanding their brands there, especially in the budget segment.
• In the Middle East, hospitality sector investments are in abundance as governments diversify their economies and join private investors to develop major tourism-related projects.
• Australia enters 2006 with significant momentum created by positive hospitality industry growth in 2005, predominantly due to a significant increase in Chinese visitors. With limited supply additions, operating performance in Australia is expected to continue to expand in 2006.

"Our in-country experts are seeing new development and construction projects underway," said Fishbin. "But they also see the sometimes complicated landscape in terms of tax implications, regulatory compliance and other opportunity costs. Understanding the full risk profile of new projects -- especially in emerging countries -- will be essential for hospitality companies looking to deliver shareholder value."

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