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John Lieberman, a displaced Battery Park City resident living at the Grand Hyatt in Manhattan since the terrorist attacks, negotiated a nightly rate of $100, down from the hotel's usual $400 fee.

With occupancy rates at hotels across the nation dropping to as low as 37% from 63% since Sept. 11, such bargaining no longer might be necessary. Indeed, the $93 billion U.S. lodging industry is in trouble, losing $700 million in the first two weeks after the attack. To counter the steep drop-off in business, many hotels are offering big deals.

Le Parker Meridien on 57th Street in New York, for instance, is offering rooms for as little as $75 a night to New Yorkers who have been displaced from their homes, while through Dec. 14, the Marriott in Times Square is renting rooms for $44 a night.

Average Occupancy at U.S. Hotels 1990-2001*
*Projected. Source: Smith Travel Research.

But Manhattan isn't the only place you can expect bargains. Hotels across the nation are slashing rates by 50% or more, and many are extending such price cuts through the end of the year. According to the American Hotel & Lodging Association, travelers can now find some of the best deals on hotel and casino hotel rooms in years.

In light of the terrorist attacks, the hotel industry has no choice but to resort to the drastic measures, says Kapila Kapur Anand, national director of real estate and hospitality services at KPMG LLP. Rates could drop even further, and even at their current levels, they will cut deep into hotel industry profits, Anand says.

Hooray for the Red, White & Blue

But rate cuts aren't the only way hotels are enticing customers. Many have created packages with patriotic themes. Indeed, a good number of hotels are donating anywhere between 1% and 10% of their rates to the American Red Cross Disaster Relief and The September 11th funds.

Starwood Hotels & Resorts (HOT - Get Report), owner of the posh W Hotels, began offering the " We Care" package at its four Manhattan hotels this week. Through Dec. 31, guests can stay at these chic hotels for as little as $199, compared with usual rates of $299 on weekend nights, says Mark Ricci, public relations manager for Starwood. The hotel also will donate 10% of the fee to the Twin Towers Fund, established to assist the families of New York City's uniformed service employees who were victims in the catastrophe. In addition, Starwood has donated $1 million to The September 11th Fund.

Similarly, the Inter-Continental and Crowne Plaza hotels, divisions of Six Continents Hotels (SXC - Get Report), launched a "Come Back to New York" campaign on Oct. 2, with rates dropping to as low as $100 a night.

"The campaign's goal is to encourage travelers to return to the Big Apple, which will benefit all areas of business," says Michael Corr, North American president of operations for Six Continents. As part of this campaign, the hotels are running print ads in The New York Times featuring typical New Yorkers -- a taxi driver, a hot dog vendor and the cast of a Broadway play -- all holding up "Still Open" signs.

Average Daily Rates at U.S. Hotels 1990-2001*
*Projected. Source: Smith Travel Research.

Other hotels are courting heroes. Le Meridien, for example, is offering a weekend package of $89 per night for anyone in the military called "America's Sweethearts," while National Hotel, a historic Art Deco hotel in Miami's South Beach, is offering a "stress relief" rate of $99 a night through Oct. 20.

A Sweetened Deal

Hotels have not forgotten which side their bread is buttered on. Many have increased travel agent commissions. Between Oct. 1 and Dec. 20, Preferred Hotels & Resorts Worldwide is paying travel agents who book their rooms 3% above regular commission, allocating 1% of the money to the Red Cross Disaster Relief Fund.

Mindful of the beating many investors have taken in the current market, Manhattan-based A Hospitality Company has started offering "recession buster" rates. The previous day's closing price of the S&P 500 stock index is the weekly rate. With the S&P currently in the $1,040 range, for example, that's what you would pay.

Other hotels are offering tie-ins with restaurants, credit cards, car rentals, entertainment and stores. Besides its "Salute to New York" offer, Doral Park Avenue also has a holiday shopping $185-a-night offer inclusive of discounts at Bloomingdale's and Macy's.

The Bottom Line

For investors in the lodging industry, however, the outlook isn't good, says Dennis Forst, managing director of McDonald Investments, who covers the four major gaming operators: Harrah's Entertainment (HET), Mandalay Resort Group (MBG), MGG Mirage (MGG) and Park Place Entertainment (PPE).

Although these four stocks are trading at an average of 12 times McDonald's revised earnings estimates for 2002, compared with 15 times earnings in 1998 -- "their lowest in memory," Forst says -- he is not sure hotel and lodging in general is a good area for investors right now.

"The uncertainty surrounding any planned military efforts and fears regarding further terrorist actions keep us from upgrading stocks or feeling more comfortable with investment opportunities at present," Forst wrote in a recent report.

Indeed, Anand concedes that while hotels are making a valiant effort to drum up business, in the event of another attack, customers could drop off even more.

But Professor Cathy Enz of Cornell's Center for Hospitality Research sees signs of a rebound. "Convention business is starting to pick up and confidence is increasing," she says.

"Americans by nature are travelers," maintains Lalia Rach, associate dean at New York University's Tisch Center for Hospitality, Tourism and Travel Administration. "This country was founded by travelers, and we do not want to see our rights diminished."

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