The U.S. federal government budget sequester has had little
impact on rates and demand at Starwood Hotels & Resorts Worldwide
properties, company executives on Tuesday said during Starwood's
first-quarter earnings call.
Starwood CFO Vasant Prabhu said that although government
business was down during the quarter, "it is less than 2 percent of our
company-operated North American business. In many cases, we've been able to
replace it with higher rated corporate customers."
One prominent, if temporary, effect of the sequester—automatic budget cuts
that went into effect March 1—was reduced operations and furloughs at the Federal Aviation Administration. The associated flight
delays were a mere blip on hoteliers' radar, said Starwood president and CEO
Frits van Paasschen, but he noted a more protracted dispute would have affected
hotel demand.
"Any real disruption in air traffic cuts off a big
source of the oxygen the hotel business breathes," he said. "This
particular hiccup in terms of air traffic didn't add up to much, but it's one
of those uncertainties."
In fact, Starwood executives said the company's first-quarter
performance in North America was better than expected, with the average daily
rate up 4.2 percent and occupancy up 1.3 percentage points to 68.6 percent. Van
Paasschen said tight supply is continuing to push up the region's rates.
"Despite the broader economic view, the lodging sector
is still strong in its recovery," he added. "As such, we remain
bullish on the U.S. for this year."
Demand in Europe, meanwhile, was weak in the quarter. ADR in
Europe was up 0.9 percent, but occupancy was down 0.7 percentage points to 56.1
percent.
"European companies are watching their costs,"
Prabhu said. "Groups are smaller, staying closer to home and are booking
later."
Even so, van Paasschen said results in Europe were in line
with expectations. The only region to perform below expectations during the
quarter was China, where ADR dropped by 0.5 percent despite a
3.5-percentage-point increase in occupancy to 54 percent. Part of that performance
stemmed from the country's leadership transition at the end of last year,
though demand began to pick up in the first quarter, van Paasschen said.
"The new leadership has been vocal in asking government
officials to rein in their ostentatious lifestyle, and social media in China
has been particularly active on this topic," Prabhu added. "This
austerity is impacting our food and beverage business and in regions where the
government is a large customer."