Wyndham International, the upmarket hotels operator, said on Tuesday it was axing 1,600 employees, or 5 per cent of its workforce, in the face of sagging occupancy rates and an overall slowdown that has hit the lodging industry in the wake of the September 11 attacks.

Fred Kleisner, chief executive, said Wyndham had implemented a "solid recovery plan". As part of the plan, the company said its banking syndicate had waived certain covenants during the third and fourth quarters, and the two sides were working on a long-term amendment to be completed by February 28 2002.

As a condition of the waiver, Wyndham will defer a $7.3m cash dividend on preferred stock for the third and fourth quarters.

Wyndham shares rose 11 per cent by lunchtime. The group is backed by three private equity groups - Apollo Investment Fund, Thomas H Lee Equity Fund and Beacon Capital Partners.

In addition to the job losses, Wyndham said a "substantial" number of employees were working reduced hours. The company has also put as many as 40 projects on hold, but still plans to complete the Wyndham Newark Hotel this year.

Wyndham said that during the week of the attacks its occupancy rate was about 50 per cent, and the week after about 40 per cent. This past week occupancy had risen to 60 per cent.

This year the FT reported that Six Continents, formerly Bass, was considering a $4bn bid for Wyndham. Wyndham on Tuesday declined to comment on the possibility of the deal, but said it was on track to sell about $500m of non-strategic assets this year.

Merger activity in the lodging industry was already beginning to slow down this year, as hotels were suffering a severe drop-off in business travel prior to the attacks.

Several analysts, including Keith Mills of UBS Warburg, believe deals will be indefinitely postponed or cancelled as the hotels market continues to worsen. MeriStar, a hotel operator, scrapped its $1.1bn takeover by rival Felcor due to "adverse changes in the financial markets" after September 11.