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Hospitality Industry Anticipates Strong Year

Presidential Ceremony Boosts a Slow Month

By Neil Irwin
Washington Post Staff Writer
Monday, January 17, 2005; Page E01

This week in Washington, hotels will be effectively 100 percent occupied, their room rates the highest they have ever been, and practically every limousine driver, florist, and caterer in town will be too busy to breathe, say executives in the tourism industry.

But the presidential inauguration is just the beginning of what is shaping up to be an excellent year for Washington's travel-related industries.

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By some measures, 2004 was one of the all-time best years for tourism in Washington. The number of passengers flying into local airports was on par with levels before the Sept. 11, 2001, terrorist attacks. In the region's hotels, revenue per available room, a measure that reflects both occupancy and rates, was $86.31 for the first 11 months of the year, according to Smith Travel Research, higher even than the boom year of 2000.

Early signs are that 2005 will be even better. The inauguration this week is creating a big boost in a month that is normally the slowest of the year; the Washington, DC Convention and Tourism Corp. conservatively estimates that out-of-town visitors will pump an extra $44 million into the local economy. There are a series of less glamorous events coming to town, too, particularly the American Academy of Orthopaedic Surgeons, expected to draw up to 30,000 free-spending attendees to the Washington Convention Center in late February. In total, 39 major conventions are scheduled in Washington in 2005, compared with 21 in 2004.

Moreover, a steadily recovering world economy and a weak dollar are helping spur more individual travelers to visit Washington. Executives in a range of tourism-related businesses say that reservations and advance bookings are up for 2005.

"People who hadn't been calling in the last few years have been making inquiries and are starting to book tours," said Craig Smith, regional manager for Martz Group, which operates tour buses in the region under Gray Line and other brand names. "2004 wasn't a banner year, but 2005 is looking very strong."

One looming worry is gone: Unionized workers at 14 of the District's largest hotels had threatened to strike during the inauguration if there was no agreement on a new contract, but the sides reached agreement on Friday.

"Assuming there are no dramatic economic downturns or dramatic security events, 2005 should be a better year for everyone, for the hotels, the restaurants, the attractions like the Smithsonian," said William A. Hanbury, chief executive of the WCTC.

Such forecasts, if they come true, would be a good thing for the region's economy. Already the industry is a key contributor to growth; in the year ended in November, the region added 6,800 jobs in the leisure and hospitality industry, according to the Labor Department, about one-tenth of the region's job growth over that period. Some executives say that they expect to hire more this year. Smith, the manager of the tour bus company, said he expects to hire 20 to 25 additional drivers for the buses for the spring season, which would bring the total to about 105. He intends to buy 12 more buses to handle the higher demand.

At Les Halles, a French restaurant on a tourist-heavy stretch of Pennsylvania Avenue NW, sales were up about 10 percent in 2004, said proprietor Philippe Lajaunie, and show all indications of continuing to improve this year. As a result, the restaurant added about three people to its staff of 50 last year, and it expects to add another three to five people this year. Moreover, the strong sales have made Lajaunie inclined to upgrade equipment. He intends to buy a new commercial grill in the next year, a $5,000 investment. The old one could probably last a few years longer, but he has the confidence -- and the cash flow -- to make the investment now.

Trends are looking particularly strong in the hotel industry, which suffered devastating financial losses in the months after Sept. 11, 2001, and saw business return gradually in 2003 and 2004. But the bad times are, paradoxically, paying off now. During the down years, few developers were interested in building hotels. Because of the long cycle for development and construction, there are very few new hotel rooms coming onto the market, even though demand is rising.

"There is an imbalance between supply and demand, and I mean that in a positive sense if you're a hotel owner," said Christopher J. Nassetta, chief executive of Host Marriott Corp., a Bethesda-based real estate investment trust that owns hotels around the nation, including the J.W. Marriott in downtown Washington and eight properties in Northern Virginia.

The only large hotel under construction in the District is an Embassy Suites near the convention center; the only large hotel project being planned in the city is a headquarters hotel for the convention center expected to have more than 1,000 rooms. But political battles are ongoing over where it will be located, and its completion could be years away.

With steadily rising demand and supply basically unchanged, hotels are eager to raise rates

"There's nothing else in the pipeline," said George Terpilowski, general manager of the Fairmont Washington D.C. "My guess is that a lot of hotels will try to recoup the rate they lost over the previous few years."

Hotel managers have a balance to maintain; they can keep room rates the same while demand rises, raising the occupancy of their hotels, or at another extreme they could let occupancy remain the same while aggressively raising rates. In 2004, according to data from Smith Travel Research, hoteliers in the region took a strategy somewhere in between, as both occupancy and room rates rose.

That may change in 2005. Some hoteliers say they are more eager to raise prices than they are to fill up their hotels more. That is because extra revenue from raising prices goes almost straight to a hotel's bottom line. Extra revenue derived from filling more rooms must also pay for the maids who tidy the room, the laundry workers who clean the sheets, and for those little bottles of shampoo in each newly occupied room.

At the Willard InterContinental, for example, on Pennsylvania Avenue NW, General Manager Herve Houdre expects revenue to rise about 8 percent in 2005, the same rate of growth as 2004. But last year, that increase came partly from an occupancy rate that rose 5 percentage points over 2003. This year, he expects to hold occupancy unchanged at about 78 percent, and to achieve higher revenue by raising prices.

"We give very good quality in Washington, but we have not been leveraging that quality as much as our colleagues in other big cities," said Houdre, explaining why he thinks rate increases at D.C. hotels are overdue.

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