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Fiscal cliff: Are we in the clear now?
January 2 2013

Now that U.S. lawmakers have averted an economic disaster by approving a tax deal, the hotel industry outlook is coming up roses, right? My guess is it’s not that simple.

By Jason Q. Freed
HNN contributor

As many of our peers did, spent the last few days of 2012 reporting on the hotel industry outlook heading into 2013. We spoke with owners, operators and brands, and you’ll be able to read their commentary on the near-term health of the industry over the next few days.

One common theme—a theme that actually dates all the way back to the NYU International Hospitality Industry Investment Conference in June—was that performance metrics and supply/demand equations were setting the industry up for a fun ride in 2013. The only remaining obstacle—and one that could easily derail the happy train—was the United States' looming fiscal cliff.

Marriott International CEO Arne Sorenson has been the most forthright with his “fear” of the fiscal cliff. It was Sorenson in June who brought the issue to light during the NYU show, saying the uncertainly around government tax cuts had businesses in a holding pattern.

“The fiscal cliff in December is a profound fear,” he said at the time.

Sorenson made public comments on the fiscal cliff as recently as Friday, issuing a news release saying: “The last thing we need is another crisis of confidence in our political system and the economy like we experienced in August 2011."

Sorenson certainly wasn’t the only hotelier suggesting the expiration of Bush-era tax cuts coupled with automatic spending cuts scheduled for the first of the year would have a detrimental effect on the U.S. economy. It’s been the talk of the industry for the past six months.

So, now that we’ve averted an economic disaster by approving a deal, we’re all good, right?

My guess is it’s not that simple.

While the agreement does give the perception of a stabilizing economy and averts tax hikes for most U.S. households, there are a number of economic issues yet to tackle, most importantly the government’s $16-trillion debt load.

And there will continue to be other industry-specific challenges as we move into 2013. Guest expectations continue to grow. Increasing costs for owners are slashing profits. New health-care regulations will undoubtedly hit the pocket book; and the distribution web seems to be getting more tangled each day.

But avoiding a fiscal cliff is certainly a step in the right direction—particularly for hotel investors—and industry leaders should parlay it into a sense of overall optimism. It appears Wall Street is doing so: The Baird/STR Hotel Stock Index, which averages 15 of the largest publicly traded hotel companies, is up more than 3% over Monday’s close, with all of the companies posting increases.

At the very least, it’s one less black swan hovering over the industry and one less excuse hoteliers can give for pessimistic outlooks. 

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