Bouncing Back

The lodging industry is a hardy business. Just as New York City did following the terrorist attacks of Sept. 11, 2001, New Orleans and the entire Gulf Coast region is working feverishly to restore luster to its tourism infrastructure, badly battered by late-August killer hurricane Katrina (followed two weeks later by Rita).

If New York City's experience is a guide, New Orleans, Biloxi and Gulfport need a combination of federal help, continued prosperity and an appeal to patriotism if these tourist-dependent markets hope to bounce back.

The stakes are extremely high, both in New Orleans and in the casino zones of southern Mississippi. According to Lodging Econometrics, two weeks after Katrina nearly 300 properties were closed in Louisiana, Mississippi and Alabama, including all 11 casino hotels on the Gulf Coast. The Travel Industry Association estimated that Katrina cost the area as much as $50 million a day in lost tourism revenues, with New Orleans and its 38,000 hotel rooms accounting for $37 million of the daily total.

By the end of September, however, several major city-center hotels in New Orleans were up, running and full of emergency workers, insurance adjustors and media. Thanks to extraordinary efforts by management and workers, the 1,100-room Sheraton New Orleans, the smaller Royal Sonesta and a number of properties in the French Quarter and elsewhere in center city never closed, even though they suffered service disruptions for weeks following the storm.

On Sept. 30, Bill Marriott symbolically raised an American flag at the downtown JW Marriott to signal that property's return to business. Yet many hotels in suburban areas and along the coast that suffered severe wind and water damage won't reopen for months, if ever.

Most chains — Starwood, Marriott, Hilton, Loews and Cendant, in particular — did yeoman work in the days and weeks following Katrina and then Rita to locate and ensure the safety of their associates, and many hotel companies continued paying their workers for weeks after the catastrophe. Marriott, for example, had 2,000 employees and 2,500 guests housed in their downtown hotels at the onset of the storm. Within a few days, the company was able to secure buses and armed guards to evacuate all but a few hundred guests and workers from the city.

DISPLACED, NOT LOST

As is often the case, natural disasters like Katrina and Rita can actually generate more business for the overall lodging industry than was lost in the affected areas. And, once hotels in the strike zone come back online they'll be filled for months and years with construction crews and others involved in the rebuilding of the area.

Smith Travel Research says RevPAR growth for the industry will accelerate this year (from 7.6 percent originally forecast to 8.2 percent) due to the increased business generated by the Katrina reconstruction. And most of the conventions and meetings scheduled for New Orleans before the city's convention center opens next spring will relocate to other U.S. cities. Main beneficiaries include Las Vegas, Orlando, Chicago and Miami. A lot of these groups meet on a rotating basis among the large convention markets so those that skipped New Orleans this year and next will probably return once the city's convention infrastructure is restored.

WHERE FROM HERE

Big questions remain, of course, on what will be the long-term effects of the disaster on the tourism business crucial to the region.

“New Orleans is a key tourism city, and the business will eventually be back,” says Don Landry, former Choice Hotels president and owner of Top Ten Marketing and Hospitality Consulting. Landry, a life-long resident of New Orleans, scrambled to get his family to safety before the storm hit. “Neither the convention center nor the French Quarter were flooded. The center is the largest one in the country on a single floor, and it's within walking distance to most hotels. It has been and still will be a great city for conventions.”

The most visible symbol of tourism destruction from Katrina was the Hyatt Regency New Orleans. Hundreds of windows in the 1,184-room property near the Superdome were smashed, and the hotel suffered significant water damage. And while losses could top $100 million, and the property may not open until the end of 2006, owner Laurence Geller sees the situation as an opportunity.

Geller, who runs Strategic Hotel Capital, believes the area around his hotel can be transformed into another tourism sector that can complement the French Quarter and convention center districts.

“It's time for serious planning, and the reopening of the hotel should be subordinate to a thoughtful, mature approach to rejuvenating the area,” says Geller, who envisions a hurricane memorial, an exhibition center, entertainment venues and housing for the area. “President Bush has committed a couple of hundred billion dollars to this city, and we should be thinking about it in a very serious and methodical fashion. I'm fearful of ad hoc randomness and looking for quick fixes and headlines. It won't work and in the end, we'll have what we had before.”

Also in doubt are the new lodging properties that were under development before Katrina. According to Lodging Econometrics President Pat Ford, 32 hotels with 5,550 rooms are in the development pipeline in the 13 coastal parishes and counties in Louisiana, Mississippi and Alabama.

“My guess is that few of these projects will be abandoned completely,” says Ford, “although I suspect we will hear about quite a few postponements and even a few cancellations.”

The Mississippi casino industry got good news earlier this month as the state legislature passed a bill that will allow the state's casinos to rebuild on dry land. Previous law required that the facilities float on barges in the Gulf of Mexico or the Mississippi River.

THE BIG IDEAS

The hotel industry in the Gulf Coast region faces a number of challenges beyond reopening for business following the storms. The range of issues will cut across all disciplines of lodging ownership, development and marketing.

  • Mold and mildew will be the most severe construction barrier hoteliers will need to overcome in the redevelopment of their properties. Given the area's humid climate, prolonged loss of electricity and floodwaters, mold will easily gain a foothold in nearly every area of every hotel.

  • Reconstruction will probably be hampered by high construction costs and limited availability of contractors and materials. Those companies with the most muscle will move to the front of the line, while Mom-and-Pop owners may find it difficult to get the resources they need to rebuild in a timely manner.

  • Those hotels that fill up with long-term contracts from FEMA, insurance companies and others will need to restart their marketing engines well in advance of expiration of those agreements. Regular travelers who are forced to find alternative accommodations may forget hotels that are offline for extended periods. Some properties may need renovations after the wear-and-tear of prolonged 100-percent occupancies.

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