Sep. 22, 2002 - After the terrorist attacks last Sept. 11, the bottom fell out of the already softening tourism and hospitality industries. Today these closely linked industries, which employ one of every 10 working Chicagoans, are still struggling to regain their footing. 

Hotel occupancy rates and room prices are sagging as convention attendance and business travel remain at low levels; a cash-strapped taxi company has given up precious licenses to pay off loans; limousine services are going belly-up; and restaurant owners and retailers in the city's trendy tourist corridors are treading water. 

And the forecast is anything but rosy as the economy struggles to escape the doldrums and the threat of war with Iraq looms. 

"The economy needs to recover, and stay recovered, before companies start to restore their travel budgets," said Jim Reilly, president and chief executive of the Chicago Convention and Tourism Bureau. "It won't happen the first day sales are up." 

As well, a war with Iraq would be a setback, said Gary Seibert, a Hilton Hotels vice president who oversees the Hilton Chicago and Towers, the Palmer House Hilton and the Hilton O'Hare Airport. 

"It tends to scare people," he said. "We saw it in the gulf war." 

Still, he's optimistic the economic cycle will trend upward slowly. Eventually, companies will need to start beefing up sales efforts and rolling out new products. 

"They will have to get on the road and speak with their clients and customers," Seibert said. 

And it won't be a minute too soon for the city's bruised hospitality and tourism industries. 

The decline in business and leisure air travel and a recent boom in hotel construction have sent occupancy rates in downtown hotels to the weakest level in 10 years. 

Though occupancy rates have headed upward since the start of 2002, the occupancy rate through August is only 64.8 percent, 10 points less than in 2000, a banner year. 

To fill rooms, hoteliers have been luring leisure travelers with discount pricing, bringing the average rate through August to $147.16, a level not seen since 1998. 

"Our raw occupancy numbers have been fairly close to what they were last year, but the average room rate is where we are suffering--there's a direct impact on the bottom line," said Hilton's Seibert. 

Changing course won't be easy for the industry. 

"Once you start discounting, it's hard to stop," said Reilly, of the convention and tourism bureau. "It's like Chrysler with zero percent financing. People get to like it, and it's hard to raise it back up." 

A key question is whether flagging convention attendance will pick up next year, bringing in the much-missed business traveler, who tends to spend more freely than a tourist. 

Although the Comdex Chicago technology trade show on Wednesday canceled its April run, the overall lineup for next year looks strong, Reilly said. 

The city expects 44 major conventions, which are those using at least 3,000 hotel rooms, with 1.28 million attendees in 2003. That would represent a strong comeback off a soft 2002 and 2001, and a 5 percent rise over a robust 2000. 

"We've got a lot of trade shows booked, but whether attendance will hold up, only time will tell," Reilly said. 

It's not just hotels that are suffering. The drop in business travel has been felt acutely in other service businesses, including the limousine/livery services and taxi companies. 

The number of liveries on the street, whether stretch limos or simple dark sedans, has dropped to 1,500 from 2,000 last year, according to Connie Buscemi, a spokeswoman for Chicago's Department of Consumer Services. 

"Probably some small companies have gone out of business and some larger companies have scaled back," she said. "Because livery is so dependent on tourists and business travelers, the numbers have changed within the last year ... no one calls a limo to go to the doctor." 

Even taxi companies, whose more diverse clientele includes local folks who want to get to the store or to a business appointment, are reporting tough times. 

Yellow Cab Management Inc., the city's largest taxi company, turned over 400 of its 973 cab licenses, known as medallions for the metal tags affixed to taxis, to New York-based Medallion Financial Corp. to pay off a $24 million loan that came due Sept. 1. 

"Since last Sept. 11, it has been really a rough go," said Casey Decker, Yellow's chief executive. "At any given time, we had 350 medallions just sitting, not being leased." 

"Drivers know more about the pulse of the city than you or I, and they knew it just was not out there," he said. "They were afraid they'd spend $100 for a day to lease, and not make enough to cover it." 

The stock market's swoon in the past year also has hurt the taxi business, according to John Moberg, president of Checker Taxi Association Inc. 

"The first cuts were extra dinners out and cab rides, and that hurt us a lot," he said. 

Cab medallions, which were fetching $65,000 to $70,000 a few years ago, are now going for the mid-$40,000s to mid-$50,000s, according to some in the taxi business. 

The city, which regulates the taxi business, paints a more stable picture, saying radio dispatch calls have trended upward in the past two years; an estimated 8 to 10 percent of radio dispatches still go unanswered; and medallion prices have held steady in the mid-to-high $50,000 range. 

"There are still people who want taxis and are not getting them, so business is out there," Buscemi said. 

Decker has big plans for Yellow, which has its own fleet of 473 autos with cabbie licenses and provides management services to another 1,600 cabbies who have their own medallions. 

The company would like to replace its 473 cabs with London Taxis, the spacious, stately vehicles that have plied the streets of London for 60 years. 

The cars, which can accommodate the handicapped, cost $40,000 each, way more than the $10,000 to $12,000 the cab company normally pays for retired police cars. So Decker hopes to win federal subsidies as well as city permission for exterior advertising as ways to offset the cost of the cars, which have not yet won government clearance for use in the U.S. 

While hotel and transportation sectors have been smarting from the drop-off in long-distance travelers, restaurateurs and retailers in tourist-heavy locations appear to be faring somewhat better. 

Anecdotal evidence suggests that revenue, while not growing much, may be on par with pre-Sept. 11 levels, buoyed by visitors from the suburbs and the Midwest who are opting to entertain themselves closer to home this year. 

"We are sustaining ourselves, but if we want increases, we need air travel," said Colleen McShane, president of the Illinois Restaurant Association. 

"I'd be lying if I said I didn't see any changes," said Patrick Norton, general manager at Smith & Wollensky, one of the city's top-tier steakhouses. "A year ago, we had a coat check where people who were traveling could check their coats and bags, and we don't have it anymore," he said. 

Business has been good, he said, "but if the business traveler would come back, if the convention person would come back ... things would be great." 

At sports/dining emporium ESPN Zone, foot traffic has come back since last fall but is still below pre-Sept. 11 levels, according to spokeswoman Samantha Beaulieu. But per capita spending is up, she said, "and we're pleased with how we're recovering." 

Retailers on North Michigan Avenue, visited by an estimated two-thirds of the city's 30 million visitors each year, are holding their own, though the group is not chalking up the annual sales increases of 5 percent to 7 percent seen for several years prior to 2001, according to Russell Salzman, president and chief executive of the Greater North Michigan Avenue Association. 

With the shopper mix shifting more toward local and regional visitors, retail revenues were up an estimated 2 percent last year. This year, the association projects sales will be flat or show a small increase. 

Still, the retail vacancy rate for the tony strip is only 1 percent, according to Camille Julmy, chairman of the association. 

"Considering everything, it's an amazing number," he said. 

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(c) 2002, Chicago Tribune. Distributed by Knight Ridder/Tribune Business News. HLT, DIS,