Hotel Stocks Slump Amid Price Wars
News that hotel operator Marriott International will post lower-than-expected third-quarter revenue yanked the rug out from under hotel stocks Thursday, as analysts saw more downside in store for the slumping sector.
Marriott (ticker symbol: MAR) surprised analysts and investors when it said it would report that its revenue per available room, the industry benchmark, is expected to be down 7% to 10% in its third quarter, which ends next week.
In previous guidance in July, the company had said it expected a decline of 5% to 6% for the quarter.
The news sparked a sell-off of Bethesda, Md.-based Marriott’s shares, which fell $2.36 to $41.34 on the New York Stock Exchange.
Shares of other major hotel companies followed suit. Also on the NYSE, Beverly Hills-based Hilton Hotels (HLT) fell 47 cents to $11.99 and Starwood Hotels & Resorts Worldwide (HOT) of White Plains, N.Y., lost $2.08 to $30.96.
The most recent concerns were sparked when data-tracking firm Smith Travel Research reported on Aug. 29 that available room revenue for U.S. hotels was down a greater-than-expected 6% in July. Compounding the bad news, Smith Travel said hotel room prices fell for the first time in July since the U.S. economic slowdown began.
The string of bad news led some analysts to say the industry’s downturn hasn’t bottomed out, despite some earlier predictions that the worst was over.
“I am not convinced, nor are some of my other colleagues, that we’ve reached bottom,” said Bryan Maher, an analyst at Credit Lyonnais Securities. “There is nothing to grab on to that we can point to to suggest anything other than continued weakness.”
Maher said that a fledgling price war--reflected by a 1.1% drop in room rates for July--was also a cause for concern among investors.
Room discounting was even more pronounced in some of the nation’s biggest cities where the biggest hotel operators are heavily represented.
One of the hardest hit was the once-red-hot San Francisco market, where room rates were down 6.1%. Other major cities where room rates fell included Boston (down 7%); Philadelphia (down 6.9%); Atlanta (down 4.9%); New York (down 4.5%); Orlando (down 4.7%) and Chicago (down 4.2%).
“I think you’ll see ongoing rate wars until such a time as the occupancy rates stop hemorrhaging,” Maher said. “Once you start a price war, it’s very hard to stop.”
Amid the gloomy outlook, Hilton saw a glimmer of hope in that the rate of room revenue declines largely held stable from July to August, said spokesman Marc Grossman.
But industry watchers pointed out that September, when the important business travel segment traditionally picks up, will be a more important month to determine whether the situation has stabilized.
