Hotels Put The Brakes On Building Plans

Hotel companies are shelving hundreds of construction projects to slash expenses amid a glut of empty rooms.

About 6% of the hotel construction projects scheduled for completion in 2002 or 2003 have been canceled or postponed since Sept. 11, says PricewaterhouseCoopers, which does consulting work for lodging companies. Those changes cover 33,000 rooms.

Developers, lenders and investors are "putting the brakes on" spending, says Eric Belfrage, hospitality director at Integra Realty Resources in Columbus, Ohio.

The travel slowdown since the attacks is expected to cost hotels $3.9 billion in revenue this year. Unlike the airlines, whose staggering losses since Sept. 11 led to a $15 billion federal bailout, the hotel industry is still expected to show a 2001 profit of $17 billion to $20 billion compared with a record $23.5 billion in 2000, PricewaterhouseCoopers says. But building plans are taking a hit as hotel companies reduce spending.

New projects. Starwood Hotels & Resorts says, with a few exceptions, it's "freezing all capital expenses" over $3 million, including the development of the upscale St. Regis Hotel and Towers in San Francisco. The 40-story project had been scheduled to open in 2003.

The Mandalay Resort Group is postponing the opening of a $200 million Las Vegas convention center from 2002 to 2003. And Hilton's holding off on plans to build vacation ownership properties in Las Vegas and Orlando. 

Budget hotels aren't immune either. Paris-based Accor says 15 planned Motel 6 and Red Roof Inn projects in the USA have been "frozen."

Expansions. Park Place Entertainment has pulled the plug for now on a 29-story, $475 million tower at Caesars Palace in Las Vegas. It plans a 900-suite tower that will be less costly to build and operate than what had been in the works, says Chief Executive Thomas Gallagher.

Renovations. Omni Hotels is postponing plans to renovate meeting rooms and ballrooms in six hotels for at least 3 to 5 months, says Chief Operating Officer Michael Deitemeyer. That's expected to help the company save 25% of its planned capital-spending budget.

Construction delays are just one measure that hotels are taking in preparation for a travel slowdown.. Since the attacks, hotels have begun plans to eliminate at least 115,000 jobs this year, PricewaterhouseCoopers says.

They are also trimming services. Restaurants are shortening their hours, business centers are turning into self-service operations and front-desk employees are working as concierges.

Smith Travel Research says guest room occupancy through Dec. 31 will fall an average 8% a month, and revenue per available room will fall 10% a month from last year's levels.

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