By Karen Jacobs
April 5 The rustic, 316-room Cheyenne Mountain
Resort hotel in Colorado Springs is usually booked solid this
time of year, just days before a major national space conference
rolls into town.
But business is off by about a third this season as NASA has
withdrawn from the conference, one of many government agencies
cutting spending to meet $85 billion in budget cuts that must be
made by Sept. 30 known as "sequestration."
"We're still taking reservations," said the Cheyenne
Mountain Resort's general manager, Todd Felsen, who has 100
vacant rooms. "Last year at this time, we were over booked."
As the U.S. travel industry nears its summer upswing,
airlines and hotels are joining other companies in warning about
lost revenue due to federal budget cuts that started in March --
and fear they'll lose much more.
This week, Delta Air Lines and US Airways Group
said reduced last-minute bookings by government workers
cut their unit revenue in March, sparking a selloff in airline
Shares of F5 Networks Inc plunged 18 percent on
Friday, after the network equipment maker partly blamed lower
government sales for its profit warning - news that also
pressured shares of rivals Juniper Networks Inc and
Cisco Systems Inc..
Last month, Britain's Smiths Group Plc, an
engineering concern whose products range from explosive
detectors to surgical needles, warned of lower revenue due to
U.S. government spending cuts.
"The outlook for summer earnings is dropping daily," as
sequester cuts get factored into the economy, said Jim Brown,
editor at options analytics firm optioninvestor.com. With Europe
and China in decline, he sees a risk that the United States
could slip back recession.
The travel industry offers a window into the domino effect
of government cutbacks. Federal, state and local governments
spent about $30 billion a year on travel in 2011, according to
the U.S. Travel Association, and the effect of reduced travel on
the movement of goods and people, business meetings, leisure
industries and tax revenue is significant. The Federal Aviation
Administration estimates that commercial aviation helps generate
$1.3 trillion in annual economic activity in the United States.
U.S. budget officials could not say how much federal travel
was being cut in the current fiscal year, but historical tallies
provide a clue. In fiscal 2012, federal agencies cut travel
spending by about $2 billion from fiscal 2010, a budget official
told lawmakers in late February.
Recent anecdotal evidence suggests government agencies are
scaling back travel even more this year. The National
Aeronautics and Space Administration announced last month that
it would not attend the National Space Symposium, the annual
space conference set for April 8-11 in Colorado Springs. NASA
Administrator Charles Bolden, who typically addresses the
conference, also will not be attending.
Travel cost-cutting will help save NASA an estimated $10
million in the current fiscal year, the agency said, noting it
already trimmed conference and travel spending aggressively in
the past. "With sequestration in place, we are further
curtailing these types of non-mission critical activities," NASA
spokesman Allard Beutel said in an email.
Those cuts ripple through the broader economy. The nonprofit
foundation that hosts the space conference estimated government
attendance this year was down by about 200 people. The meeting
brings millions of dollars to the Colorado Springs economy, and
allows the community to showcase its picturesque mountain views.
"This is our Super Bowl," said Felsen, of the Cheyenne
AIR TRAVEL CONCERNS
The effects of sequestration come as hotels and airlines are
recovering from the 2008-09 downturn. Many U.S. airlines marked
their third straight year of profitability in 2012 despite high
oil prices. U.S. hotels have posted three years of gains in
occupancy and average daily rates after declines in both
measures in 2009, according to data from Smith Travel Research.
As the budget tightening continues, the travel industry is
growing increasingly concerned that plans to furlough air
traffic controllers and trim spending on customs and border
patrol will cause long delays at major airports that could keep
business and leisure flyers away, and slow cargo shipments.
While those factors have not affected travel so far, some
travel agents says customers are voicing fears about flight
delays and long security lines at airports this summer.
Julia Jacobo, an executive assistant with Cook Travel in New
York, said some customers are hesitant to book international
flights, which are most profitable for carriers.
"For now, people are still flying," Jacobo said. "But due to
our clients' concerns and hesitation, we are worried about what
this will mean for bookings in the future."
Airport officials say it's still unclear what will happen
when controller furloughs begin April 21. They warn disruptions
are possible, and say travelers should arrive early for flights
and be prepared for delays.
At Hartsfield-Jackson Atlanta International Airport,
controller furloughs could close one of five runways, which
could lead to flight delays or cancellations.
"We're planning for the worst case scenario," said Louis
Miller, the airport's general manager. "We're hoping that
Congress and the Administration can get something worked out"
before the furloughs start.
DC AREA HOTELS TAKE HIT
For hotels, government belt-tightening poses challenges
mainly for the Washington, D.C., area, which is seeing soft
"At least 30 percent of (that market's) business is
government related, if not more," said Patrick Scholes, a New
York-based hotel analyst with SunTrust Robinson Humphrey.
Outside of Washington, effects of sequestration don't appear
to be showing up in a major way, he said.
But hotels had been feeling reduced government spending even
before sequestration took effect. Budget uncertainties led to
cancellations of several air shows, including Virginia's Langley
air show and the 2013 Wings Over Wayne Open House and Air Show
at Seymour Johnson Air Force Base near Goldsboro, North
Carolina, both of which had been scheduled for May.
Mark Carrier, president of B.F. Saul Company Hospitality
Group, a Bethesda, Maryland-based operator of 20 hotels, said
there has been a noticeable drop in business since January tied
to sequestration. Sixteen of his company's hotels are in the
"It's everything from the agencies saying 'we're not going
to have meetings or do the training that we planned' to
situations where the normal demand just isn't showing up,"
Carrier said. "It's really a significant thing here regionally."
As government business decreased, spending by defense
contractors such as Boeing Co and Northrop Grumman Corp
have also dropped off, Carrier said. At B.F. Saul hotels
in the Washington region, 20 to 25 percent of business is
directly dependent on the federal government, while another 20
to 25 percent is related to contractors, he added.
As a result, B.F. Saul expects a significant drop in hotel
revenues this year from 2012, Carrier said. That follows flat
revenue the past two years, he said.
"We just have no way to offset the demand change in
government and the contractors," Carrier said.
Scholes said the D.C.-area hotel weakness is likely to have
a minimal effect on globally diverse hoteliers such as Marriott
International and Starwood Hotels and Resorts Worldwide
, which are benefiting from strength in other U.S.
markets such as San Francisco and Texas.
But, he said, sequestration "definitely makes it a
challenging business environment for those companies that have a
lot of DC exposure."