BIZ: Will Big Hotels Recommit?

Post-Katrina life in New Orleans is full of chicken-egg challenges, and one that’s had the local tourism industry in a tizzy is this: To regain visitor momentum, the city needs to show it’s ready to receive and entertain; but some hotel owners hesitate to reinvest in the city without knowing whether – and how strongly – visitors will embrace New Orleans in years to come.

Final decisions by owners of some local hotels are still pending more than a year after Katrina closed them down. Local anxiety over these decisions is a reminder of how much New Orleans now depends on good will from afar.

It’s to the credit of some of the city’s largest hotels that immediately after the storm and flood they put themselves on a fast-track. Recommitting themselves to New Orleans right off the bat, those not severely damaged in the disaster scrambled to make repairs, open their doors and put “heads in beds,” in the industry vernacular. The biggest downtown hotels – Sheraton, Marriott and Hilton – were among those that put themselves and their employees to the test, housing and feeding people in need, along with those who were here to help.

In some respects, the industry’s more serious worries – those of a financial nature – were time-delayed. That’s because for months after the storm, FEMA vouchers kept most of the available rooms full and helped keep the hotels on their feet.

For hotels that remained open and rode out the post-Katrina roller coaster, the real crunch came in the spring. With FEMA no longer paying the tab and a brief visitor resurgence subsiding, hotels then had to face the always-slow summer season in a city at the foot of a steep comeback trail.

In general, the hotels came through the summer surprisingly well. According to analysts at Tennessee-based Smith Travel Research, the average occupancy of New Orleans hotels was 66.2 percent through August of this year, down only 1.8 percent from the first eight months of 2005.

Of course, occupancies benefited from the fact that the city’s hotel room inventory dropped by as many as 10,000 rooms after Katrina. That drop produced another reward: The average local room rate through August was $121.84, up 10.5 percent from the first eight months of 2005.
“Rate growth is very strong,” Smith Travel Research analyst Jan Freitag says.

His figures, however, predated the September opening of a new 450-room hotel by Harrah’s New Orleans. That property is sure to reduce the number of rooms that Harrah’s “buys” from other hotels to house casino patrons.

How rates will hold up as the Ritz-Carlton New Orleans comes back on line also remains to be seen. The doors of the 425-room Ritz and its companion 75-room Maison Orleans will swing open with considerable fanfare this month. The Ritz will no doubt take a big chunk of the high-end market and force other hotels into a more competitive rate posture.

The fortunes of all will depend on how fast visitor traffic grows and how many more hotels recommit themselves to the city.

“Overall, I think the hoteliers in the market are fairly bullish on the market,” Freitag says. “The question is, can [those still closed] get the materials and labor to get their properties open again?”

Many in the tourism industry have their fingers crossed over a sweeping downtown plan by Hyatt Hotel New Orleans. Last spring, Hyatt Chairman Laurence Geller, CEO of Hyatt owner Strategic Hotels, unveiled a $700 million proposal to rebuild the heavily damaged Poydras Street property and develop a pedestrian mall from Poydras to Canal Street. While the corporation has committed considerable funding, a good deal more will be necessary.

In addition, a cloud seems to hover over the historic Fairmont Hotel New Orleans. Known long ago as the Roosevelt Hotel and now regarded with a deep sense of nostalgia by locals, the Fairmont sustained severe damage from the storm and flood. The 700-room property underwent initial basic remediation, but its owners then brought the action to a halt. They have since been mum as to a projected reopening. General Manager Ray Tackaberry recently would say only that a decision as to the hotel’s future will come before the end of the year.

At the moment, the Fairmont’s future lies with its owners, a Saudi Arabian prince and a California real estate investment firm. Prince Alwaleed bin Talal and Los Angeles-based Colony Capital LLC partnered to buy Toronto-based Fairmont Hotels & Resorts Inc. last May for $3.9 billion.

Having the fate of a local hotel in the hands of a Middle Eastern prince carries a touch of irony. Early this year, a business owned by the government of the United Arab Emirates made a bid to acquire six U.S. port operations, including a cargo handler at the Port of New Orleans. The company ultimately dropped its bid in the face of heavy-handed warnings by U.S. politicians about the possible ill intent of Arab nations toward Americans.

The circumstances serve as a reminder that business of all kinds is increasingly global, and good relationships with “outside” interests are crucial to domestic economic success.

Since Hurricane Katrina, New Orleans has enjoyed substantial good will among citizens of this nation and much of the world. But to retain that support, businesses that operate here need to demonstrate their intent to go the distance in the city. Actions by major hotels, in particular, are potentially powerful.

“A lot of people want to see the city come back, and they want to go back to visit,” travel analyst Freitag notes. “It’s up to hotel owners to show that they’re coming back.”

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