Economic Update – Hospitality Industry Has the Jitters
- Apr 27, 2009
The specter of a swine flu pandemic excited the news media over the weekend, based on outbreaks in Mexico and a handful of cases in the United States. Few industries are likely more worried about such a prospect than the travel business, including hotel owners and operators. As a hint of what might happen if the disease spreads, tour operators in Japan have reportedly canceled a number of organized tours to Mexico that were to have taken place during Japan’s string of spring holidays known as Golden Week–a prime season for travel by Japanese, which begins on April 29. The U.S. hotel business has already taken some hits lately. According to the most recent report by Smith Travel Research, hotel occupancies nationwide were 55.2 percent in March 2009, compared with 62.5 percent during the same month last year. Revenue per available room (revPAR), another important hotel industry metric, was down 20 percent between March 2008 and March 2009. Moreover, during March none of the top 25 markets in the United States reported gains in occupancy, revPAR or room rates. Orlando saw the biggest drop in occupancies year-over-year, down 17.9 percent. New York City saw the largest drop in revPAR over the same period, down 35.5 percent. For now, it looks like the effort to give bankruptcy judges the authority to reduce–cram down–mortgage payments based on a residence’s market value will be nixed by the U.S. Senate. The proposal, vigorously opposed by banks and credit unions, passed the U.S. House of Representatives last month. Senate Republicans and a handful of Democrats, however, will probably vote it down this week. In Chicago, real estate auctioneer Sheldon Good & Co. filed for Chapter 11 bankruptcy late last week, citing the “improper actions” of Steve Good, the chairman of the company who commit suicide in early January. In an affidavit included in the filing, company president Alan Kravets said that “the decrease in operating capital created by Steven Good’s misappropriation of monies magnified the effects of the current economic downturn and an overall decline in the U.S. real estate market.” How much “misappropriation” wasn’t specified. According to the company, it will keep operating during the its bankruptcy, having obtained $2 million in debtor-in-possession financing. Like many other kinds of finance, debtor-in-possession financing has been difficult to obtain recently, so the fact that Sheldon Good & Co. has been able to do so points to its viability as an ongoing entity. Wall Street spent Friday in positive territory, with the Dow Jones Industrial Average ending up 119.23 points, or 1.5 percent. The S&P 500 was up 1.68 percent and the Nasdaq gained 2.55 percent.