Sequestration Concerns Dilute Marriott's Optimism - Business Travel News

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Sequestration Concerns Dilute Marriott's Optimism

February 20, 2013 - 01:20 PM ET

By Michael B. Baker

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," he said.

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, he said.

"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."

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