Sequestration takes its toll on the Washington area meetings business

A slowdown in government travel and conferences has made the Washington area an exception in an otherwise rebounding hospitality market nationwide.

The Washington region has continued to bear the brunt of federal government cutbacks, particularly in Bethesda, Pentagon City and Crystal City, even as hotels outside the region see gains in business and leisure travel.

“In the past several months, expectations for pretty much all major markets have improved,” said Patrick Scholes, an analyst at SunTrust Robinson Humphrey in New York. “Except for D.C. — it’s the one market where [projections] have softened because of sequestration.”

Marriott International said last week that profits were up 31 percent, in large part because of a resurgence in business travel throughout the United States. The Bethesda-based company said profits rose to $136 million, or 43 cents per share, up from $104 million, or 30 cents per share last year.

“Resorts in Florida and the Caribbean and ski resorts out West were very strong,” said Laura Paugh, senior vice president of investor relations for Marriott. “The only weak part of the business was group bookings.”

Group bookings — whether by government agencies or private corporations — continued to be largely flat throughout the industry.

At Marriott, group bookings for 2013 are up just 4 percent, but executives say they expect that figure to grow in 2014.

“It seems like corporations are still very cautious about overspending on conferences,” Scholes said. “Where we are seeing noticeable acceleration, though, is in the individual business traveler who’s going somewhere to visit a client.”

The presidential inauguration, coupled with a rise in individual business travel, gave a temporary boost to traffic in the Washington area.

“But after that, we’ve seen a drop-off in government business,” Paugh said.

Locally, the amount of revenue generated per available hotel room, a key industry metric, inched up about 3 percent, in large part because of January’s presidential inauguration.

By way of comparison, revenue per available room grew 5.8 percent in North America to $179.53, exceeding peak 2007 levels, said Arne M. Sorenson, Marriott’s president and chief executive.

“Our business has seen dramatic recovery in the past few years,” Sorenson said in a statement.

In a subsequent call with investors, Sorenson said government budget cuts were likely to push down revenue figures for the rest of the year.

“We expect continuing negative impact . . . throughout 2013,” he said.

Analysts say it’s difficult to quantify exactly how much of an impact sequestration has had on the region’s hotels.

At LaSalle Hotel Properties, which owns the Sofitel Washington and the Lansdowne Resort in Leesburg, revenue per available room grew 5.1 percent overall. In the Washington area, it was up 6.8 percent. The company’s overall revenue was up 11 percent in the first quarter, to $191.7 million. But the effects of sequestration may be just beginning.

“During the second quarter, we have seen minor impact, all of which has been outside of Washington, D.C. Within D.C., we are being told by contacts that decision making surrounding booking government business has gotten more stringent, and as a result, government leads are generally down for the remainder of the year,” Michael D. Barnello, chief executive of LaSalle, said in a call with investors. “The impacts of government decision is clearly nationwide and not limited to Washington, D.C.”

Even so, some analysts say broader economic growth and improving unemployment rates may help insulate hotel companies from the blow of sequestration.

“Government business is definitely down,” said Nikhil Bhalla, an analyst at FBR Capital Markets. “But the good news is that it’s not enough to drag down the entire hospitality industry.”

Abha Bhattarai covers local banking, retail and hospitality for The Washington Post’s Capital Business section.
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