Despite positive performance in 2012 and an otherwise optimistic
outlook for the year ahead, Marriott International executives are concerned
that the looming U.S. federal-spending sequestration deadline could lessen not
only government travel demand, but also overall travel demand.
During the company's fourth-quarter earnings conference call
on Thursday, Marriott president and CEO Arne Sorenson echoed many of the
positive trends cited by competitors during the past few weeks. Corporate rate
negotiations are about 85 percent complete, he said, and Marriott came close to
realizing its goal of increases in the high-single-digit percentage range.
"Special corporate negotiations came out a little
lighter than we anticipated, but maybe by a half a point or so, so nothing
meaningfully different," Sorenson said. "It could be explained around
anxiety around the fiscal cliff and the economy."
For the final quarter of 2012, overall average daily rates increased
3.3 percent globally year over year and by 4 percent in North America. Executives
expect the increases to continue this year. Sorenson also called group business
an "encouraging sign," as group revenue put on the books during the
final quarter of 2012 for events in 2013 was up 8 percent compared with the
same period last year.
Even so, the March 1 deadline for sequestration—automatic,
deep federal budget cuts that will occur short congressional action—could be "another
ugly chapter" for the hotel industry, Sorenson said.
Sorenson estimated that government travel makes up about 5
percent of hotel demand overall and about 12 percent of demand in the
Washington, D.C., area. Last year, a few meetings were canceled because of
government cutbacks though nothing "that showed up in a measurable way,"
Hotels felt cutbacks in other ways. Some government groups
no longer order lunches during events, with hotels adapting by offering bagged
lunch options at the federal government per diem rate, according to Sorenson.
Should the deeper cuts take effect, however, the impact could
be broader and eventually would spread outside of the government travel sector,
"Government contractors will look early in the process
to cut travel expenses, so that is very much a connection to our industry, and
we'll be hit a little harder than the industry on average," Sorenson said.
"There's also another debt ceiling issue, and as we watch it, we don't see
there's much reason for optimism and a quick resolution. It's something that
could expand from a government-travel-related thing to the broader economy."