Fundamentals in the hotel industry remain strong, but ongoing political uncertainty in the U.S. could derail the recovery, according to Marriott International’s President and CEO Arne Sorenson.
BETHESDA, Maryland—A dark political cloud is hanging over the U.S. hotel industry, according to Marriott International’s President and CEO Arne Sorenson.
While hotel fundamentals have been strengthening, Sorenson said during the company’s fourth-quarter earnings call that a “failure of the political process” threatens to derail recovery if automatic federal budget cuts go into effect on 1 March.
He said potential government spending cuts could negatively impact results and hotel demand. During the fourth quarter, revenue per available room for the company’s hotels in Washington, D.C., fell by 4%, said Carl T. Berquist, executive VP and CFO.
Congressional debate over the budget cuts and another debt ceiling fight could mean “another ugly chapter” for American politics, Sorenson said.
“As we watch it, we don’t see much hope for a quick resolution to this,” he said.
Because of this uncertainty, Sorenson said Marriott set its guidance for RevPAR growth during the first quarter at between 4% and 7% for comparable system-wide hotels in North America, in part because of per diem cuts and a shorter legislative calendar.
“We can’t ignore the risk to the economy” from U.S. legislative cuts, Berquist said.
Development and CapEx
Despite the uncertainty looming in the United States, Marriott is moving forward with development plans. Marriott added 37 hotels during the fourth quarter, representing 13,982 rooms, including 8,098 rooms from its acquisition of the Gaylord brand.
The company’s worldwide pipeline of hotels under construction, awaiting conversion or approved for development increased to approximately 800 properties with nearly 130,000 rooms at the end of 2012. Overall, Marriott has a portfolio of nearly 3,800 properties worldwide. Sorenson said nearly half of the openings will be in the U.S.
Another focus of development is in China, Sorenson said. The company intends to be in 50 Chinese cities by 2016.
Sorenson said the China market was hit by a transition of power that took place recently.
“We are hopeful that we will see China build over the course of the year,” he said. “There is some sense of stability returning in the market following the Chinese government transition. We haven’t seen the quick snap back to levels before the impending transition.”
Also, the company has earmarked between $200 million and $225 million of its $600-million to $800-million capital expenditures budget for the further development of its Edition brand, Berquist said. Sorenson said there are seven Edition hotels in development with six more in early development talks.
Group business and negotiated rate
Sorenson said the company has completed approximately 85% of its special corporate negotiated rates and those rates look to be up by 6%.
“The special corporate rates negotiations are a little lighter than we would have anticipated, but only by maybe half a point,” Sorenson said. “That doesn’t really give us much concern.” He added there appears to be some anxiety from clients about the fiscal cliff.
Still, Sorenson was upbeat over the health of group business. “Group business continues to improve,” he said.