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Slump woes drive business travel south
Business travel, which has propped up the hotel industry amid a dip in demand from leisure travellers, now looks ready to weaken as the recent carnage on Wall Street reverberates through businesses of all sorts.
- Agencies
- Published: 00:02 October 1, 2008
Los Angeles: Business travel, which has propped up the hotel industry amid a dip in demand from leisure travellers, now looks ready to weaken as the recent carnage on Wall Street reverberates through businesses of all sorts.
"There is a lot of uncertainty and everyone is trying to cut costs where they can. Travel is one of the first things businesses will look at," said Jeremy Glaser, a hospitality industry analyst at Morningstar.
JP Morgan analyst Joe Greff lowered earnings estimates on Thursday for all lodging companies under coverage, citing factors such as lower corporate volumes and higher group cancellation rates. He also lowered ratings on Marriott International Inc and Starwood Hotels & Resorts Worldwide Inc to "neutral" from "overweight."
Bottomlines
Hotel industry tracker Smith Travel Research lowered its forecast this week for 2008 revenue per available room - a combination of room rates and occupancy that is a benchmark of industry health - to 1 per cent, compared with its forecast of 5.2 per cent at the beginning of 2008, when business travel was expected to hold firm.
"I think in the next few months we are going to see a lot of [travel budget] cutbacks," by companies looking to defend their bottom lines, said Kenneth Simonson, chief economist at Associated General Contractors of America, the largest trade association of builders.
He spoke here before some 5,000 franchisees, hotel owners and managers at InterContinental Hotels Group Plc's annual Americas conference.
InterContinental, the world's largest hotelier, said this week the hotel market in the Americas came to a standstill in Aug-ust as the economic downturn in the United States began to be felt.
The British-based owner of the InterContinental, Crowne Plaza and Holiday Inn brands, which earns almost 70 per cent of its income from the United States, said revenue per available room (RevPAR) across the Americas was flat August.
"The investment banks are capturing the headlines, but when you peel it back, the number of people moving around is not much less than it was," Andrew Cosslett, IHG's CEO, said in an interview.
Mark Lomanno, president at Smith Travel Research, said any softness in travel volumes has so far been offset by higher hotel room rates now that operators have gotten savvy about the pitfalls of discounting. After the dislocation of the 2001 terrorist attacks, hotel operators, aided by the take-off of Internet price comparisons, slashed room rates to attract visitors.
Declining
"What's different now is the behaviour of the industry - systems are better, more sophisticated," Lom-anno said. "It doesn't work to employ a discounting strategy in a declining market."
Prime locations are likely to fare best. Lomanno said a weak US dollar has aided top-tier US markets such as New York and Orlando, Florida, while plans by airlines to significantly cut back on capacity is a worrisome trend for secondary and tertiary US markets.
Morningstar's Glaser also said well-located hotels in major cities are likely to fare relatively well, while properties in other markets are on much shakier footing. "I think we are starting to see weakness in the middle of the week - which means the weakness is spreading into business travel," he said.
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