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Sequestration cuts could deal blow to hotels
March 12 2013

The U.S. sequestration is cutting into hotels’ government-related business, one of the most lucrative business segments for the industry, sources report.

Highlights
  • The NDTA suspended its annual forum in September because military travel has been curtailed.
  • “Travel could become the face of sequestration,” the U.S. Travel Association’s Erik Hansen said.
  • Government contractor business is also at risk for hotels.
By Shawn A. Turner
Finance Editor
Shawn@HotelNewsNow.com

REPORT FROM THE U.S.—Hotels are facing the loss of one of their most lucrative business segments—government travel—as sequestration gets underway.

Automatic spending cuts in effect across all government agencies have included the slashing of all non-essential travel by federal employees. The order to halt travel already has hit the hotel industry.

Last week, it was announced that the 67th annual National Defense Transportation Association Forum & Expo, which was to be held this September in San Antonio, Texas, at the San Antonio Grand Hyatt, was suspended. In a letter to members, NDTA President Kenneth R. Wykle said the lack of funds for government/military travel necessitated the suspension of the event.

“If the military is unable to participate, the Forum’s value is minimal,” he wrote. “Opportunities for training, knowledge sharing and information exchange are essential for our success. Sequestration removes these opportunities and makes it impossible for NDTA to continue our Forum.” Officials at the Grand Hyatt did not return a telephone message for comment by deadline.

It’s unclear precisely how big a slice of business the federal government is for hotels, though sources agreed it makes up a substantial piece of the pie. In 2011, the most recent data available, federal, state and local governments spent $30.3 billion on travel, said Erik Hansen, director of domestic policy with the U.S. Travel Association.

The travel sector could become one of the most impacted by sequestration because “almost every (federal) department travels,” Hansen said.

“Travel could become the face of sequestration,” he said.

Hoteliers react
B.F. Saul Company Hospitality Group counts 16 properties in its 20-hotel portfolio in the Washington, D.C./Northern Virginia market. President Mark Carrier said the government sector represents 30% to 40% of the total business at the hotels.

It’s not just the loss of rooms bought by federal employees that hurts, he said, it’s also the prospect of losing government contractors, such as Northrop Grumman Corporation.

“We do a lot of business with the federal government, and what we’re hearing and feeling is there is in most federal agencies a definite (order) to cut back on travel,” he said.

Mark Carrier
B.F. Saul Company Hospitality Group

 

B.F. Saul has had some cancellations related to government travel, Carrier said. “You feel it through a decline in transient pick up,” he said. “It’s definitely affecting business demand. There’s no question about it.”

Michael Allen, COO of Beck Company Hotels, said the company also has noted some drop off in business. Beck Company has 10 properties in Virginia, including four in Newport News, home to the military’s Fort Eustis.

Approximately 60% to 70% of the company’s business in the region is government, much of it training related, Allen said. “It’s important to our hotels,” he said. “People are nervous in town.”

He added: “It could have a dramatic impact on top-line revenue.”

So far, Beck Company has not seen cancellations on reservations that have been booked far in advance, he said.

“People are delaying their decisions,” Allen said. “They are apprehensive about the extent of sequestration.”

Government travel outlook
Hansen doesn’t know just how much more fat the government will be able to trim from its travel budget.

“Federal conferences and travel have already been ratcheted back so far,” he said. “If they make any more cuts, they’re really cutting into the bone.”

Carrier said he is unsure how long sequestration might be a factor for hotels. “Is it long term? Let’s hope not,” he said.

Carrier likened the cutback in government travel to the decline in corporate travel that occurred between 2007 and 2009. Hansen added that hotels have shown in the past an ability to weather such storms.

“The hotel industry has always been resilient,” he said.

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