Marriott Blames Biz Travel

When Marriott International, the first of the large multi-brand hotel companies to release third-quarter earnings, announced its results on Oct. 3, the downbeat numbers were consistent with the weak performance the U.S. lodging industry has turned in all year and were in line with analysts' expectations.

As negotiations for 2003 rates continued this month, the picture remained unclear as to when an industry turnaround might occur. This bodes well for buyers, because it suggests hotels will be more willing to negotiate favorable rates. Analysts predict that 2003 negotiated rates will either be flat with 2002 rates or decline anywhere from 5 percent to 10 percent, depending on the city in question.

At Marriott, revenue per available room at its full-service U.S. hotels fell 7.8 percent for the quarter, compared with the prior year. Factoring in the performance of Marriott's midprice brands, the drop in RevPAR was 6.8 percent. Company chairman and CEO J.W. Marriott Jr. laid blame for the weakness squarely on the soft demand from business travel, particularly transient travel.

With lodging revenue closely dependent on business travel spending, hotel companies are monitoring closely third-quarter corporate profit reports this month.

"They know that with a drop in profits, their major accounts are likely to cut their travel spend," according to UBS Warburg analyst Keith Mills. On Oct. 4, Mills cut his firm's U.S. RevPAR projections for 2003 to 2.3 percent from 3.5 percent. Already, he and his Bear Stearns counterpart Jason Ader have predicted that hotel revenues might not show significant improvement until 2004.

UBS Warburg's 2003 RevPAR expectations are even bleaker than revised projections released by PricewaterhouseCoopers in late August. At that time, Bjorn Hanson, head of PwC's hospitality and leisure practice, cut his firm's RevPAR projection from 5 percent to 3.5 percent, saying he could foresee no short-term catalyst that would result in a strong business travel rebound.

Hanson cited five factors for the lodging industry's current distress. First and foremost is the continued weakness of the national economy and the subsequent cuts in business travel. In addition, Hanson cited declines in the stock market, lack of consumer confidence, frustration with air travel and concerns about a likely war with Iraq.

Smith Travel Research last week released preliminary findings on the U.S. lodging industry's performance for September. The numbers were surprisingly positive, but as Smith Travel Research president Randy Smith cautioned at this year's NYU Hospitality Investment Conference, monthly year-over-year comparisons seem more upbeat because the picture already was bleak a year ago. A more reliable comparison, he said, would be to 2000, which was a banner year for the industry.

For September 2002, Smith Travel found U.S. occupancy rates had risen 3 percent to 5 percent, with upper upscale hotels registering a 21 percent to 23 percent uptick.

Likewise, year-over-year RevPAR was up 6 percent to 8 percent for the month, with upper upscale properties scoring the biggest gain. By contrast, Smith Travel said both occupancy rates and room revenues at the economy price point were down for the month between 1 percent and 4 percent. In September 2001, of course, hotel occupancy rates and room revenues plummeted in the aftermath of the terrorist attacks.