LOS ANGELES — On New Year's Eve in downtown Los Angeles, hotel lobbies were crowded with revelers and guests, many of whom were planning to attend the Rose Parade or Rose Bowl football game the next day.

But the holiday crowds concealed the uncomfortable expectation that the incoming year probably will not be a very good one for the hospitality business.

Just above the busy lobby at the Westin Bonaventure, an arcade of shops was almost entirely devoid of customers, and the "sale" signs posted in the windows looked worn with age.

Visits by splurging tourists have diminished, said Donald Kim, who has operated a boutique in the hotel for more than three decades. He still stocks gold-plated brands such as Dior and Givenchy, but has added low-cost knickknacks to appeal to the conventioneers who now make up the bulk of his customers.

"Those people only buy souvenirs such as T-shirts," he said. "Not handbags."

Hotel industry fortunes fell hard at the end of 2008, and the prospects for 2009 look grim as Americans cut travel spending and leave plenty of room at the inn.

Hotel room reservations have fallen drastically as business travelers and vacationers cut down on trips. In 2009, U.S. hotels will suffer one of the greatest annual declines ever in occupancy and revenue, according to analysts.

In their suffering, however, many hotels will give travelers a break by lowering prices or offering incentives such as free meals to entice more business.

"We just get creative," said Mehdi Eftekari, general manager of the Four Seasons Hotel in Los Angeles, where he says occupancy is down slightly. Incentives might include a free breakfast, car rental or spa treatment with a room rental. Perhaps the hotel will offer paying guests a third night free.

"We know that people have scaled back," he said. "The first-class traveler is traveling coach. The suite buyer is scaling back to a standard room."

The Four Seasons doesn't plan to lower room rates, but many others are. PKF Hospitality Research predicts that net operating income at U.S. hotels will be down 14 percent in 2009, driven in part by room rate reductions.

The lean times, expected to last into 2010, follow nearly a decade of booms. Hotel business dipped sharply in the recession of 2001 and 2002, especially in the months after the terrorist attacks of Sept. 11, 2001. But the years that followed were good for hoteliers as travelers resumed free-spending ways.

"This is a bad time in part because it is coming off of a great time," said Bruce Baltin, senior vice president of PKF Consulting Corp., which monitors the hotel industry. "The years 2005 and 2006 were all-time highlights for Southern California."

Much of 2007 also was great, followed by a gradual loss of momentum into 2008 as occupancy dwindled. Then came the credit market meltdown last summer and the ensuing economic crash. Business and leisure travelers quickly cut back.

"September was definitely a point of departure, when hotel revenues around the country began a free fall," said Los Angeles attorney Jim Butler, a hotel specialist and industry blogger. "Since Labor Day, business has been falling off a cliff."

Most of the reasons revenue is slipping are obvious. Corporations are cutting back on travel expenses, reducing the number of trips and often putting employees in cheaper hotels when they do travel.

Companies are also axing group events such as out-of-town sales meetings and seminars that usually are a reliable source of income for hotels.

As their incomes fall, hotel owners will respond by laying off staff and cutting other costs, which might include some guest services and amenities, PKF analysts said.

Empty rooms help reduce operating expenses because they don't need daily services, but there is a limit to how many dark rooms hotels can financially tolerate before the lack of income becomes crushing.

"By and large, hoteliers have given in and are trying to compete on rate, which will create a downward rate spiral" of competition, attorney Butler said. "That will mean significant pain for a lot of people in the hotel industry."

Many hotels traded hands during the boom years and, like many homes, are no longer worth as much as their outstanding mortgage debt.

"It's scary," Butler said. "Some owners will lose their hotels."

There will be bankruptcies, distressed property sales and loan renegotiations with banks, he said, but not as many as there were in the recession of the early 1990s.