Hotel Industry: Bailout Victim

Highlighted stocks include Marriott International (MAR) and Starwood Hotels & Resorts (HOT).

Articles published today in the Wall Street Journal and the Washington Post highlight the efforts of lodging industry groups to fight back against perceptions that are making a bad hotel operating environment even worse. Specifically, the rhetoric coming out of Washington attacking "corporate excess" is having the unintended consequence of harming hotel companies as corporate customers cancel group meetings en masse.

The hotel industry is already dealing with significant declines in bookings from leisure travelers and transient business travelers. Revenue per available room (RevPAR), a key industry operating metric, fell by more than 20% last week in the U.S. The declines in group bookings have the potential to cause significant additional harm, as group business typically provide hotels with several days of increased occupancy, strong room rates and additional revenue generation from meetings and food & beverage sales.

Congress and the Treasury have placed travel restrictions on companies that have received federal bailout money. The cutbacks to travel-budgets have extended far beyond these firms, however, as the current public perception is that corporate travel equals excess and waste.  Amid this environment, companies in every industry are scaling back their meeting plans.

Even though millions of jobs in the U.S. are dependent upon the travel and tourism industry, we expect that hotel industry executives will have a hard time selling their story on Capitol Hill or on Main Street. No matter how beneficial a large group meeting may be to a firm in the long run, the fact remains that travel budgets are among the easiest corporate expenses to cut, and given the current public perception, companies that maintain their current meeting plans risk investor backlash.

Sell-rated Marriott (MAR), Hold-rated Starwood (HOT) and other companies in the hotel industry can likely expect their operating environment to continue to deteriorate throughout 2009.

If things get bad enough, perhaps they can lobby for a bailout package of their own.

Read the full analyst report on MAR

Read the full analyst report on HOT

Read the full analyst report on MAR

Read the full analyst report on HOT