Marriott reduces revenue forecast

Decreased demand for rooms undercuts 3rd-quarter estimate

September 07, 2001|By Meredith Cohn | Meredith Cohn,SUN STAFF

Leading hotel operator Marriott International Inc. said yesterday that it expected decreased demand for rooms to impact its third-quarter results more than previously expected - indicating that the industry could be in for tougher times than forecast.

A Marriott spokesman said the company did not know when the situation would improve.

"Clearly, the industry has been somewhat weaker than expected," said Tom Marder, a Marriott spokesman. "That led our chief financial officer to indicate that he expects the third quarter to be impacted."

In an effort to draw more travelers, the company announced this week that fall and winter weekend rates will be reduced up to 40 percent at nearly 1,500 hotels.

They include Marriott, Renaissance, Courtyard, Fairfield Inn, SpringHill Suites, Residence Inn and TownePlace Suites.

But while the rates may be good news for travelers, they are bad news for shareholders.

If revenue per available room - a key barometer of hotel demand - continues on a downward trend, profit will follow.

In the third quarter, Marriott expects a 7 percent to 10 percent drop in revenue per available room from last year, rather than the 5 percent to 6 percent drop management had previously indicated.

"No one knows the extent of what the decline will be," John Arabia, an analyst at Green Street Advisors, said about Marriott room revenues.

"It's a turbulent time. These hotels have nightly leases, and they don't know on any given day how many people will show up. Clearly, this is an industrywide problem."

Arabia said the hotel industry's fortunes aren't likely to turn around until about three to six months after the economy in general improves.

And no one is sure when that will be, he said.

"It could come in the second or third quarter of 2002," Green Street's Arabia said.

Meanwhile, Wall Street has begun heeding the Marriott news.

At least one firm has lowered its estimate of third-quarter performance.

Credit Suisse First Boston Corp. has lowered its estimate of growth in revenue per available room to 5 percent from 8 percent and reduced its earnings estimate for the third quarter to 40 cents a share from 43 cents a share.

Marriott shares closed at $41.34, down $2.36 for the day and $9.16 off its 52-week high of $50.50 on May 22.

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