Hurricane Katrina's devastating blow to the Gulf Coast last week not only incapacitated dozens of hotels, leaving corporations scrambling to reschedule hundreds of events, but will reverberate nationally as soaring jet fuel prices precipitate potential airfare hikes and exacerbate financial crises at major airlines.
For the aviation industry, the disaster came at the very end of the traditionally stronger summer travel season and the next few months—if not weeks—likely will determine which players manage to emerge from bankruptcy protection and which ones sink.
Meanwhile, it likely could be next spring before many hotels once again open their doors for business. "Our hotel clients right now are talking possibly about not being operational until March or April of next year," said Bruce McIndoe, CEO of traveler security and risk management firm IJet Intelligent Risk Systems.
The New Orleans convention and visitors bureau said in a statement last Friday that all meetings in the city through Dec. 1 have been canceled. "Damage to hotels has been much less when compared with other parts of the city from a structural or wind perspective. Damage assessments, however, cannot really begin for some time," said the CVB.
Katrina's longer-term impact will hit airlines not only by reducing passenger traffic to and from New Orleans and surrounding markets, but also by seriously disrupting Gulf oil pumping and refining. According to the Air Transport Association, the national supply of jet fuel was cut 13 percent. As a result, jet fuel prices last week were running 35 cents per gallon higher than before the storm to well over $2. ATA said each penny increase equates to $190 million in additional annual fuel costs for the industry.
Operationally, supply disruptions could lead to additional scheduling problems as some airlines and airports reportedly are experiencing fuel shortages. The Air Transport Association and the Federal Aviation Administration last week quelled supply fears, saying airlines will have sufficient fuel on hand to maintain their flight schedules.
At the same time, analysts and industry observers last week anticipated airfare hikes and fresh fuel surcharges. Delta, meanwhile, increased minimum-stay requirements on many tickets for flights to and from Atlanta
(see story).In the immediate term, many airlines this week are rebuilding flight schedules in the southeastern United States following the storm's devastation. "Most carriers are suggesting that cancellation activity still is within budget for the quarter, suggesting the impact on operations has generated more headlines than anything else," said J.P. Morgan Securities analyst Jamie Baker. "Regrettably, the same cannot be said of Katrina's impact on energy prices."
Though some affected airports were expected to be operating close to normal this week, travelers still were urged to confirm reservations. New Orleans' Louis Armstrong International Airport at press time was handling only relief flights. Normal commercial operations could be suspended for months.
Meanwhile, many carriers throughout the month are using more flexible ticketing policies and allowing travelers to re-book itineraries after being forced to cancel hundreds of flights across the region last week. Affected airports included Baton Rouge, Birmingham, Huntsville, Jackson, Mobile, Montgomery and Pensacola, as well as many other Florida airports impacted to a lesser extent by Katrina's initial landfall near Fort Lauderdale.
As of press time, hoteliers in affected areas—particularly New Orleans—were working with local authorities to determine when individual properties, and the city itself, would return to operation. Marriott last week said its 15 properties in New Orleans "will remain closed until local authorities advise they may reopen" and the company, as of press time, would not accept reservations for those properties.
The chain is waiting to issue a policy on Katrina-related meeting cancellations until it can coordinate with local convention and visitors bureaus and other hotel chains, said Bob McCarthy, Marriott executive vice president of North American lodging operations. "We're careful to work as collaboratively as possible in this time of need," he said in a conference call last week.
"We are coordinating aspects of transient guest reservations and we are in contact with many of the groups that have secured meetings between now and the end of the year within New Orleans. There is a series of activities underway to communicate with them and deal with the implications of their group commitment," according to Jeff Wolf, Marriott regional vice president of market operations.
Hilton also said New Orleans-based properties would be closed indefinitely, and hotels affected by Katrina in other areas would not reopen for weeks or months. Cancellation fees have been waived for meetings through Nov. 30 at hotels in the region.
Hyatt vice president of sales operations Fred Shea agreed on that timeframe for the company's Hyatt Regency in New Orleans, which as of press time was still in the process of evacuating guests. "We hope to be open April 1," he said. "We estimate over 500 guest rooms were damaged. The glass atrium lobby was broken. But the hotel is dry, it's not flooded."
Reservations have been canceled and cancellation fees waived at the hotel through March 31, 2006. Shea said 189 groups were booked at the New Orleans property through Nov. 15, and the Hyatt national sales team has been successful in contacting most of those.
"All the local businesses we expect to cancel and not rebook," Shea said. "We're in the process now of trying to contact all the groups that have business through March 31 to try an assist them to relocate, preferably in a Hyatt hotel, or do whatever we can to help relocate them."
Many major hotel companies last week said they were arranging bus services and accommodations for guests at weather-stricken properties, and the exodus moved many to neighboring areas. InterContinental, echoing others in the lodging industry, said that due to the outflow of guests, "many hotels are overbooked, especially in areas with a huge influx of evacuees, including Alabama, Arkansas, East Texas, Florida, Louisiana, and Mississippi."
Jeffrey Peters, director of global travel services at BP, said the storm spurred some preferred hotel companies to reach out. "There have been no instances of price gouging, and there's even been outreach by two of our chains to say, 'We're here for your BP folks.' We've had similar conversations with our car rental," he said.
However, Joan Eisenstodt, president of independent meeting management firm Eisenstodt Associates, said she was angry and frustrated at those hotels waiving cancellation fees only through the next two months. "Who in their right mind believes that New Orleans will be inhabitable in even six to nine months?" she said. "How can they not even extend the waiver to December? Who do they think is going to work in these hotels? Where are they going to stay?"
"Obviously, this is a true force majeure. If groups have insurance they will be able to get something," she said, "except that a lot of meetings weren't protected by insurance because the insurance rates went up so much after 9/11 that groups couldn't get it."
The CVB would begin contacting groups with scheduled events in the city on Sept. 5, said J. Stephen Perry, president and CEO of the New Orleans Metropoitan Convention and Visitors Bureau in a statement posted on the bureau's Web site. According to the CVB, 118 events were planned from Sept. 5 to Nov. 15, including 19 events with more than 1,000 attendees. New Orleans is the fifth-largest domestic destination for large trade shows.
Before the hurricane made landfall, there already was substantial uncertainty around airline solvency. "We expect consolidation and restructuring activity to pick up in the airline industry after the Labor Day weekend," said Calyon Securities analyst Ray Neidl, in a research note last week. "There definitely may be another airline bankruptcy or two before the bankruptcy laws are tightened on Oct. 17
(BTN, Aug. 15)."
Delta last month had made progress in its efforts to avoid bankruptcy. The latest deals include an extension to Oct. 31 with its current Visa/MasterCard processor—the original expiration was Aug. 29—and a $425 million tentative sale of Atlantic Southeast Airlines to SkyWest. Under terms of the SkyWest deal, both ASA and SkyWest would continue serving as Delta Connection carriers through 2020. Delta purchased ASA in 1999
(BTN, Feb. 22, 1999) and had added 100 regional jets to the fleet during the past six years.
The consensus among industry analysts was that Delta's moves would not be enough to stave off a Chapter 11 filing. Delta's outlook grew more grim last week as jet fuel prices advanced.
"We will continue to take a hard look at all of our operations and assets to identify opportunities to strengthen our financial position in the face of continuing market pressures and factors outside of our control, including fuel prices," said Delta CEO Gerald Grinstein.
Northwest Airlines also is considered a candidate for bankruptcy and its immediate prospects appeared more tied to fuel than an ongoing strike by thousands of workers represented by the Aircraft Fraternal Mechanics Association. As of last week, the carrier was maintaining nearly all operations by using replacement workers
(BTNonline, Aug. 22).It is unclear how Katrina's impact would affect United Airlines parent UAL Corp.'s plans for completing a nearly three-year bankruptcy restructuring.
The company said it has received updated proposals from four financial institutions for up to $3 billion in total exit financing and the bankruptcy court late last month granted yet another 60-day extension of exclusivity for filing a plan of reorganization. UAL executives said the plan could be filed early this month, but the company now has until Nov. 1 before outside parties can submit alternative plans. The presiding judge indicated that the latest extension would be the last one, absent "significant, unforeseen circumstances," according to UAL. It remains to be seen if the hurricane qualifies.