PKF Studies Potential Fallout For Hotels From Airline Capacity Cuts

Airline capacity cuts have the potential to reduce hotel demand even more than the post-Sept. 11 drop, although effects would vary largely by hotel markets and tiers, according to PKF Hospitality Research data released today.

PKF's research indicated that a 1 percent drop in airline capacity could, at worst, cause a 0.39 percent decline in U.S. hotel demand. "If airline capacity is reduced by 10 percent as some have suggested, then lodging demand would fall off 3.9 percent," PKF president Mark Woodworth said in a statement. "To put this in perspective, the decline in lodging demand experienced in 2001 was just 3.3 percent."

A demand drop of that magnitude would be the equivalent of 40 million room nights and $4.3 billion in revenue, according to PKF.

Effects would vary by market, the data suggested. Such cities as Miami, Orlando, Phoenix and Denver that either have a high reliance on leisure travel or are not close to other major metropolitan areas would face the largest demand drops. Cities more easily accessible by car or train, including most of the major cities on the East and West coasts, would be less affected. Midprice and upscale hotels also would face bigger demand drops than the luxury and economy tiers.

"These two lodging segments are popular with mid-level business and leisure consumers that don't have quite the economic insulation of executive luxury travelers, or the bare-bones budget of construction crews and thrifty trekkers," PKF senior adviser John Corgel, a real estate professor at the Cornell University School of Hotel Administration, said in a statement.

PKF also said there are mitigating factors between the relationship of airline capacity cuts and hotel demand. For example, most upcoming capacity cuts would be in routes that are least in demand, and many travelers would merely adjust the timing of their trips rather than foregoing them altogether, according to the firm.