CA Hotels Will Have To Tighten The Belt to Get Through 2002.

Business Editors

LOS ANGELES--(BUSINESS WIRE)--Feb. 14, 2002

Ernst & Young Report Predicts Hospitality Market Reactions In Los

Angeles, San Diego, San Francisco as well as Costal, Sierra

and Desert Regions

The California Hospitality Services Industry is facing what may be its toughest year in recent memory. The combination of the dot com meltdown, energy crisis, state deficit, World Trade Center attack, ensuing war on terrorism, drop in the stock market, and prolonged reductions in corporate travel, have combined to make for what may be the most challenging operating and business environment in the last decade. In a report released today, Ernst & Young's Hospitality Services Group describes the challenges this year will bring, analyzes the major California lodging markets and offers advice on how to ride out the storm. The report, a follow-up to Ernst & Young's National Lodging Forecast, provides a detailed analysis of the California lodging industry. The full report titled, "California 2002 Lodging Forecast" is available at: www.gallen.com/eykl/HSGReports.htm

Not surprisingly, the report found that some markets are fairing better than others. San Diego, a top tourist destination, is fairing the best, where the hotels should be recovering in the next three months. Los Angeles, more dependent on corporate travel and conventions will likely be depressed for the next ten months. The tech-bust epicenter, San Francisco, facing the toughest market in the state will be on the ropes until early 2003.

Report author, Jeffery Dallas - E&Y's West Coast Hospitality Practice Leader, says some California hotels may change hands before this year is over. "With plunging occupancy rates and reductions in room rates, hotel profit margins are getting thinner and thinner. Over 75,000 hospitality and tourism workers in California have lost their jobs in the last six months. The profit picture will not be getting much better for several months and it is anticipated that some hotels may default on their loans. Weaker operators may get bought out as buyers looking to enter the California market grab an opportunity to buy on a discount," Dallas predicts.

Other effects from the struggling hospitality industry include lower tax receipts to state and local governments. The California tourism industry generates approximately $5 billion in taxes. These taxes play a large role in helping local governments pay for a variety of city services and re-development projects. The reduction in "bed tax" receipts will no doubt limit local governments' ability to initiate new projects in 2002.

There are some steps hotel operators can take to help get through the next few months says Dallas. "Smart Operators are making moves now that will help them not only get through the rough months ahead, but also position themselves for the markets eventual recovery." Some of the efficiencies include: financial restructuring, property re-valuation, outsourcing of services, improved information technology efficiencies and the rationalization of human resources.

The long-term health of the California hospitality market is good. "California is the fifth largest economy in the world, representing 14 percent of the U.S. GDP, and attracts over 250 million travelers per year. The short-term slump we're in poses significant challenges for the next few months, but we believe the lodging markets will recover in late 2002 and 2003 and return to normal in 2004. California is the most visited state in the nation and that's not going to change," said Dallas.

The complete report which includes Ernst & Young's original research and market analysis on numbers compiled by Smith Travel Research, can be downloaded at: www.gallen.com/eykl/HSGReports.htm

Or for more information contact report author Jeffrey Dallas at: 213 240-7099 - [e-mail]

About Ernst & Young (E&Y) Hospitality Service Group

The Hospitality Services Group of Ernst &Young is considered one of the largest and most effective advisory practices in the world. The Hospitality team is focused on delivering value-added solutions that are focused and quick to implement. Industry authorities for over 25 years, the E&Y Hospitality team provides research and analysis of worldwide industry movements and opportunities. Market research and analysis is just one component of its full range of client services. From lodging to tourism, from finance to operations, the industry looks to Ernst &Young to create value in its coordinated delivery of advisory, tax and audit solutions. The hospitality team covers markets in North America, Europe and Asia.