Marriott Reports Drop In Profit

Marriott International saw a drop in profit and sluggish domestic revenue growth in the second quarter of 2008, further indicating a hotel negotiating season more favorable to buyers than any in the past several years.

Marriott, the first major hotel company to report performance for the quarter, this month reported profits down 17 percent compared with the second quarter of 2007, and the company expects domestic demand and revenue growth to continue to slow for the remainder of the year. "While there is much uncertainty, we expect weak economic growth and soft U.S. lodging demand to persist into 2009," Marriott CEO J.W. Marriott Jr. said.

The company reported that revenue per available room in the United States grew by 1.4 percent for the quarter compared with the same period in 2007, and the average daily rate increased by 2.3 percent. Outside of North America, RevPAR was up 15.5 percent, and rates increased by 15.4 percent. Overall, rates were up 6.3 percent and RevPAR was up 4.2 percent.

For the rest of 2008, Marriott expects global RevPAR to be flat or increase by up to 2 percent, and North American RevPAR to range from a 1 percent increase to a 1 percent decline.

Marriott CFO Arne Sorenson said in a conference call that group business was strong, with property revenue up 6 percent and revenue on the books for the rest of the year up 5 percent compared with 2007. However, he also said cancellations are up a bit, group attendance is down and the pace of new bookings indicated some meeting buyers were delaying their hotel bookings.

Bjorn Hanson, clinical associate professor for the NYU Tisch Center for Hospitality, Tourism and Sports Management, said corporate rates negotiated in better times for hoteliers are keeping revenues afloat, as are the conventions and meetings negotiated in prior years. As buyers enter into negotiations in the next few weeks, it could mean even tougher times for hotels next year.

"Business travel is stronger than leisure travel, and it will be stronger after Labor Day, helping in the last quarter," Hanson said. "We won't have as much of that in 2009."

Kevin Maguire, National Business Travel Association president and CEO and travel manager for the University of Texas' intercollegiate athletics, said buyers will take advantage of the leverage. "Hotels are going to suddenly find out that corporate America has minds like elephants," he said. "We don't forget the fact that we've been paying huge premiums for hotel rooms the last three years. Now, it's in our court."

Meanwhile, PKF Hospitality Research data released this month showed that U.S. air capacity cuts of 10 percent could have a heavier impact on hotels than the post-Sept. 11 drop. Sorenson, however, said business travelers would still buy higher airfares and rely on more heavily traveled routes that are less likely to be cut.

Marriott is still on track to meet its supply growth target for the year. It added 9,000 rooms, 2,500 outside North America, to its portfolio in the second quarter, with 130,000 rooms in its worldwide pipeline.