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The Honolulu Advertiser
Posted on: Sunday, May 19, 2002

Travel industry's tradeoffs could last

By Donna Rosato
USA Today

On the menu at the Sheraton Hotel's Cafe Terra Cota in Colorado Springs, guests are more likely to find meatloaf and hamburger than exotic fish or a fancy sirloin these days. The main restaurant closes at 10 p.m. now instead of 11 p.m. And the flowers in the lobby are silk, not fresh, as they were before Sept. 11.

Those changes illustrate the careful tradeoffs that companies across the travel industry are making as they await a full recovery in business travel spending. Companies are trying to keep service high enough to attract discriminating business travelers while cutting costs in ways that they hope won't offend the high-spending customers they have now. Some changes may outlast the business travel downturn.

Travel industry executives say they are trying to find smarter ways of doing business to better protect profits in the next economic slump.

'Profit preservation'

"Rather than call this cost-cutting, we call it profit preservation," says Bob Morse, president of hotel operations at MeriStar Hotels & Resorts, which manages the Sheraton in Colorado Springs and is the largest independent hotel management company in the USA. Other MeriStar properties include Hilton, Marriott, Radisson and Starwood.

"We looked at what we can do to still meet the customer's needs and do things in a way to maintain our profit margin," Morse says.

Nearly 200 of MeriStar's 275 properties now have a "green" housekeeping program where guests are offered the option of keeping the same bed linens and towels during their stay instead of having them changed daily. Other changes include cutting back room service and restaurant hours, offering buffet service instead of waiters at breakfast and simplifying menus with lower-cost items.

The changes at MeriStar reflect actions taking place across the lodging industry. Hotels reduced concierge, bellboy and front desk staff, cut amenities such as free bottled water and fruit at the front desk and limited hotel decorations such as flowers in the lobby and candles in restaurants. Marriott no longer includes a shoe mitt in its in-room amenity kits.

"Any item that you're not putting in every room represents a cost savings," says Marriott spokesman Roger Conner.

The cost-cutting moves have been so effective, in fact, that hotel analysts are predicting a small increase in profits this year vs. last year, something not expected six months ago.

"After Sept. 11, there was great uncertainty for this industry. But hotels have pleasantly surprised us on the cost side," says UBS Warburg lodging analyst Keith Mills.

Cost-cutting is expected to save the hotel industry $3.4 billion this year, according to PricewaterhouseCoopers lodging analyst Bjorn Hanson. He is forecasting a 1.8 percent increase in hotel profits this year vs. 2001 — something Hanson believes would have been impossible without the cost-cutting.

Airline clubs close earlier

Airlines were the quickest to react to the drastic drop in travel after Sept. 11, laying off thousands of workers and cutting up to 20 percent of flights. Some workers are being called back, and flights are slowly being restored. But meal service, which was suspended on many routes, has yet to make a comeback on flights of fewer than four hours and on routes that airlines consider non-competitive.

"I am not happy at all about the decrease in meals," says frequent traveler Beth Klineman. "If I get stuck in coach, and there's not much time to get a meal in between connections, I starve."

Business travelers also say they're frustrated that airlines have closed airport clubs or reduced club operating hours, which give fliers a place to do work while waiting for flights. Philadelphia-based software consultant Edward Reagan says that on a recent flight through Pittsburgh, his connecting flight home was delayed until 12:30 a.m.

"They kicked us out of the club at 10 p.m. Before Sept. 11, the club used to stay open until the last delayed flight left," Reagan says. "I am getting very tired of airlines, hotels and airports using the excuse of Sept. 11 for cost-cutting."

Rental-car rates rise

Car rental companies also quickly downsized fleets in the fall, taking nearly 500,000 vehicles out of their systems between September and December. That's meant fewer cars available for travelers. Tighter fleets have helped push rental-car rates up.

"Supply is down, and that's why (rental-car companies) were able to raise rates," says Cathy Stephens, executive editor of "Auto Rental News".

A survey of rates by "Auto Rental News" found the average price for a one-day midsize rental with unlimited mileage was $65.85 in Newark, N.J., vs. $60.98 last year. In Los Angeles, rates climbed to $55.23 vs. $48.84.

Dollar Thrifty, which cut 20 percent of its management staff and drastically reduced its fleet size, posted a record first-quarter profit of $12 million.

"Cost-cutting is the No. 1 reason we had such a good quarter," says CEO Joseph Cappy at Dollar Thrifty, where a 9 percent increase in rates also helped.