NEW YORK (Reuters) - Room revenue at Marriott International Inc MAR.N is running 17 percent below year-ago levels, at the lower end of the hotel operator’s recent forecast, according to Chief Financial Officer Arne Sorenson.
“I would not expect pronounced improvement in demand until we see improvement in the economy,” he said at the Reuters Travel and Leisure Summit in New York.
He said Marriott is less confident today about its ability to know what the future is going bring than at any time in recent memory.
The company forecast last month that its revenue per available room, a key metric of hotel industry business, would fall by 12 percent to 17 percent in 2009.
“The longer demand stays weak, the more pressure there will be on (room) rates,” Sorenson said. “There are lots and lots of rooms out there being priced by smaller players. We have to compete with that on some level.”
He said that during the last months of 2008 and heading into 2009, Marriott has seen fewer new commitments for group bookings than in the past.
“In this environment, we would certainly expect to see and have seen already some higher attrition levels than in the past,” Sorenson said.
He said the best-performing hotels are those that had significant group business booked before the economy turned sour.
“The hotels which are purely transient — so that would include some limited service hotels and some smaller full service, and probably the higher-end resort destination hotels that depended on financial institutions and their meeting business — those would probably be the hardest hit,” Sorenson said.
Marriott, which typically manages hotels instead of owning them, expects to open 30,000 new hotel rooms this year, near the 33,000 opened in 2008.
“As we get into 2010 and certainly by 2011, we’ll see that these hotels that are under construction are opening and not being replaced,” Sorenson said. “We’re seeing meaningfully fewer commitments to new projects and construction starts today than we saw a year ago or two years ago.”
The CFO said Marriott will be able to offset some of the decline in new builds with the conversion of existing hotels to its brands.
Many owners borrowed heavily to acquire hotel assets during the boom years of the lodging industry.
“At the moment, it looks like lenders are inclined to work with even the relatively higher-levered companies because they realize that today is not the right time to push a company to the wall or take back assets, because the assets are probably valued less aggressively in a market like this today,” Sorenson said. “And as long as that dynamic stays in place, I would expect most of the companies and real estate owners in our industry to survive until stronger times.”
The CFO also said Marriott still expects this year to sell between $250 million and $350 million in notes tied to its time-share business.
“We’re optimistic we can get something done in the first few months of this year. Sorenson said.
Reporting by Deena Beasley; Editing by Derek Caney and Gerald E. McCormick