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WAR WITH IRAQ

Outlook for Travel Industry Worsens

Hotels see a rise in cancellations, a survey finds. Delta says it will cut flights by 12%.

March 25, 2003|Jerry Hirsch | Times Staff Writer

The slumping travel industry took a turn for the worse as hotel cancellations mounted and the prospects for a rapid end to the war with Iraq faded.

A PricewaterhouseCoopers survey over the weekend found that people have canceled more than 20% of booked hotel rooms over the next seven days in such key business and leisure markets as San Francisco, Las Vegas, New York and Orlando, according to Bjorn Hanson, the accounting firm's lodging industry analyst.

Nationwide, Hanson said Monday, hotel bookings in coming weeks are expected to be down 5% from prewar projections.

"The markets being penalized are those with a higher percentage of international travelers and those with a higher percentage of air travel," Hanson said.

On Monday, Delta Air Lines Inc. became the latest major carrier to cite the falloff in passengers as it slashed operations. Atlanta-based Delta said it would cut flights by 12%. It did not say whether any layoffs would result.

Last week, Northwest Airlines Corp. said it would reduce flights by 12% and eliminate nearly 5,000 jobs.

UAL Corp.'s United Airlines and AMR Corp.'s American Airlines also have trimmed their schedules to adjust to declining demand.

Although the airlines have plenty of empty seats, roadside hotels and motels "and the drive markets are holding up better," Hanson of PricewaterhouseCoopers said.

For travel agencies, this is prime booking season when tourists make arrangements for their summer vacations.

"We are seeing veteran travelers continue to book," said Ada Brown, who owns the Seaside Travel agency in Long Beach. "It is the infrequent traveler who is staying out of the market, saying they are concerned about safety."

Business travel reservations have slipped 4% since the start of the war at Carlson Wagonlit Travel, a Minneapolis-based corporate travel company that books nearly $11 billion in air and hotel reservations annually.

Hotel properties in large markets are being hit disproportionately.

Citing a "significant deterioration in business," Starwood Hotels & Resorts Worldwide Inc., owner of the Sheraton and Westin chains, on Monday withdrew its earlier financial forecasts for the first quarter and the rest of the year.

"January was pretty strong, February turned down and March has been worse," Starwood spokesman David Matheson said.

Cancellations picked up with the start of the war, and Starwood was hurt by its concentration of properties in the urban Northeast, an area rife with concerns about terrorism reprisals.

Matheson said New York hotels account for 15% of Starwood's earnings; Boston makes up 9%.

Starwood's announcement sent lodging stocks tumbling on the New York Stock Exchange. Starwood shares fell $2.69, or 10%, to $24.11.

Shares of Beverly Hills-based Hilton Hotels Corp. fell $1.27, or 10%, to $11.64. Marriott International Inc., based in Bethesda, Md., declined $3.02, or 9%, to $31.86.

Meanwhile, in Las Vegas, the major hotel operators have an upbeat outlook for the near term because of heavy traffic from bettors while the NCAA basketball championship tournament is in progress, and pop diva Celine Dion is set to open a three-year run at Caesars Palace starting today.

But an analyst familiar with Vegas properties said they are starting to see a rise in cancellations.

"They will offset some of this by discounting or giving away rooms," the analyst said. "We will see this later when we find out what happens with their [revenue per room] figures."

The stock market seemed to be anticipating a decline in business at the big Vegas casino companies. On Monday, MGM Mirage shares fell $2.05, or 7%, to $29.12; Park Place Entertainment lost 42 cents, or 6%, to $7.12. Both trade on the NYSE.

Airlines also took large hits Monday. Delta shares fell $1.73, or 15%, to $9.52 on the New York Stock Exchange. Shares of Fort Worth, Texas-based AMR dropped 30 cents, or 13%, to $2.08. Houston-based Continental Airlines fell $1.17, or 17%, to $5.65. Shares of Eagan, Minn.-based Northwest Airlines dipped 94 cents, or 11%, to $7.36 on Nasdaq.

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