If business travel is some kind of hammer, Marriott International (MAR) is some kind of nail.
The hotel operator has undertaken the kind of cost-cutting campaign – laying off staff, closing restaurants, shuttering floors of its hotel properties – that’s aimed at mitigating the effect of slowing sales. While that effort has improved the bottom line, it hasn’t done much for the top line. As the company’s second-quarter earnings evidenced.
Even though net fell 76%, earnings still came in slightly ahead of forecasts, as 23 cents a share – ex the costs of things like restructuring – versus forecasts of 21 cents a share.
But the topline shrank 20% – pretty well anticipated – while revenue per available room slid 26%. That’s significantly worse than then analysts’ projections that, industrywide, RevPAR would decline about 20%, while Smith Travel, the research group, estimated a drop of 17%.
Marriott didn’t fully characterize the business-travel fundamentals – it described being ”in the midst of a continued difficult environment for the travel and tourism industry” – but travel, whether airlines, car rentals or hotel rooms, have been greatly affected by a slowdown in business travel. That’s typically the least price-sensitive customer base, meaning for the travel industry, the highest-margin customer has disappeared. The problem has been compounded by what’s come to be known as the ”AIG Effect” on travel: businesses’ reluctance to approve business travel in order to maintain the appearance of eliminating costs.
Looking ahead, Marriott turned gloomier. In fact, significant gloomier than it suggested at the beginning of the second quarter. Instead of the earnings of 88 cents to $1.02 for the year that it forecast in April, Marriott is looking at 76 cents to 86 cents for 2009. The third quarter goes to 9 cents to 14 cents from Street estimate! s of 20 cents.
Compounding some of the problems: the upcoming bulge in capacity. Shovels already have gone into the ground on construction that will add another 110,000 rooms to Marriott’s current stable of about 577,000 rooms. That’s a nearly 20% increase in capacity at a time when the focus has been on cutting costs. Marriott shares have had a dismal reaction to the results and the outlook, tumbling 8% in Thursday’s trading.
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