• Marriott loses at home

The current military intervention in Libya has, as Barack Obama launches his re-election campaign, drawn attention to the changing role of the US in the rest of the world. Obama is keen not to be put at the head of the air strikes and create an impression of a country which is all fight and no finesse. 

Closer to home, the country's economy is also lacking in fight, as Marriott reported in late March with the news that business was picking up overseas but that demand in North America was less than expected.

CFO Carl Berquist said that North America revpar growth had been below expectations, forecasting growth of 5% to 6% for the first quarter. Internationally, results were looking stronger, with revpar up 11%. The group expected worldwide systemwide Q1 revpar to increase by around 7% , at the low end of the company's 7% to 9% guidance.

The CFO told a conference in Las Vegas: "In New York City a lot of supply came on. We were expecting that supply but it came on at rates that were lower than expected. We have been the leader in pricing and had moved our rates up. As this supply came on at lower rates, it slowed this process down."

Berquist said that softness had been evident in large group hotels in locations including New York, Atlanta, Orlando, Fla. and Washington D.C.,  causing shares in the group to fall by close to 7% immediately after the announcement. This was exacerbated by Goldman Sachs, which downgraded Marriott to neutral from buy while cutting its 12-month price target on the stock to $38 from $48, citing concerns over weakness in the company's timeshare unit, which it plans to spin off.

The US has seen moderate recovery, but issues around high unemployment and the weak housing market remain. As this was going to press, there were some encouraging signs that the services sector was recovering. The Institute for Supply Management's index of non-manufacturing businesses was little changed at 59.5 after a 59.7 reading the previous month, that was the highest since August 2005.

However, last week also saw Goldman Sachs downgrade its estimate of first-quarter US economic growth by a percentage point to 2.5%, with Jan Hatzius, chief US economist at Goldman Sachs, commenting: "The basic story of good growth, low inflation and friendly monetary policy that we have been telling since late last year still stands. But it's all a little messier than we would like. The risks to our second-half GDP forecast of 4% also remain on the downside."

Hatzius cited higher energy costs, tighter fiscal policy and weaker economic data, with the added threat of an interest rate increase sooner than the first quarter of 2013, which it was currently forecasting.

Hotel companies are currently looking to take advantage of limited supply coming into the market, but this is not the case in markets such as New York and, ahead of the 2012 Olympics, London. The impact of such large-scale expansion will not be fully-known until the planned openings have happened, but it is felt that any shock will be short term, as demand matches up with supply. New York, which has held its own in the downturn, is also now facing challenges from other cheaper destinations which offer better value for money for straightened consumers, particularly at the top end of the market.

However, in other US markets, such as Florida and, although not specifically identified by Marriott, Las Vegas, recovery looks set to be slow and the company and fellow US operators must look to offset the weaknesses in its domestic markets.

Marriott, which saw, approximately 65% of its incentive fees derived from international properties last year, has previously outlined plans to cut its dependence on the US market. These include not only the current vogue markets of China and India, but established markets such as Europe, which are less exposed to geo-political stresses.


HA Perspective: Marriott's deal with AC Hotels, which saw it gain access to Spain, wider Europe and Latin America, is rapidly being seen as a blueprint for operators to expand into unfamiliar markets with high barriers to entry and, while the US market remains weak, it will rely on it and similar deals to buoy up the business.

More importantly, overseas expansion is needed for long-term growth momentum. Europe, if anything, is likely to endure even slower economic growth than the US but it offers much better growth opportunities for hoteliers prepared to consolidate small chains and individual hotels.

Even if US economic growth does surge – and it would be unwise to bet against it – the real engine of growth for the US operators is outside of home.

Share →