Obama? Romney? Hoteliers say that both threaten lodging recovery

By Danny King
PHOENIX — On the day an estimated 50 million Americans tuned in to the first presidential debate of the 2012 election, about 1,400 attendees at the Lodging Conference here had one question on their minds: How will whichever candidate wins manage to screw up a perfectly good lodging recovery?

Their pessimism, it turned out, was essentially bipartisan; they saw different dangers lurking in the plans and platforms of each candidate.

Panelists and attendees expressed continued concerns that the re-election of President Obama could spell higher business taxes and more costly industry regulations related to issues such as guest and workplace safety.

But while Mitt Romney was generally regarded as more business-friendly, he wasn’t getting any ringing endorsements, either.
Some worried that Romney’s harder line on immigration reform could hurt the immigrant labor force on which much of the hospitality industry depends. They further worried that the government spending cuts Romney favors would force companies with substantial government contracts to cut both hiring and investment, putting a further crimp on the economy.

And whichever candidate wins, the biggest issue facing attendees was the so-called “fiscal cliff,” the January deadline for finding a compromise on deficit reduction.

If no compromise can be reached, automatic cuts will kick in, slashing $607 billion, equal to about 4% of the country’s gross domestic product, from the federal budget. Among many other cuts, these would include an end to myriad tax cuts, including the payroll tax holiday and the expiration of federal unemployment benefits.

Most economists warn that such an abrupt adjustment to federal spending could produce a double-dip recession.

“The fundamental structure of the U.S. economy today is a heck of a lot better than a half-decade ago,” said Lodging Conference speaker and former Time magazine economics reporter Bernard Baumohl, now the chief global economist for the Economic Outlook Group. “But if no fiscal action is taken, there’s an 80% probability of a recession.”

This conference should have been marked by general optimism, given the fact that the lodging industry has been recovering well and outpacing much of the rest of the U.S. economy. Yet hoteliers and analysts worried that an administration headed by either candidate threatened to produce policies that would result in an economic slump.

The data suggest that hoteliers indeed have something to lose.

U.S. revenue per available room (RevPAR) through August was up 6.3% from a year earlier, according to Vail Brown, vice president of global business development and marketing at Smith Travel Research (STR), who gave a presentation at the conference.

Lodging Conference panelists David Kong, Best Western International CEO; Eric Danziger, Wyndham Hotel Group CEO; and Joe Berger, president of Hilton Worldwide’s Americas region, all reported that demand was rising fast enough across all hotel sectors to spur room-rate increases that were adding to hoteliers’ bottom lines.

“Despite all of the negative news that we hear in the press, the first eight months [of 2012] for our industry have been very strong,” Brown said. “We have hit an all-time high in room revenue.”

In his presentation, Tim Hart, executive vice president of the travel-technology firm TravelClick, said that with new development at a near standstill, 2013 also appears to be shaping up well because inventory is not growing.

Group-booking sales for the next 12 months are 4% ahead of year-ago figures, he said, indicating that businesses continue to boost their investment in employee travel.

Still, that optimism could be short-lived, especially if a lame-duck Congress fails to enact balanced cuts and revenue increases before the January deadline. PKF Hospitality Research President Mark Woodworth predicted that, should the government fail to avoid the fiscal cliff, the resulting cuts, combined with an unemployment rate in the 8% to 9% range and stagnant inflation-adjusted income levels, would cause U.S. lodging demand to shrink 1% next year.

What’s more, 2013 RevPAR, he predicted, would be virtually flat.

Most media outlets gave Romney the edge in the first debate last week, and a quick poll at the Lodging Conference the morning after the debate showed near-unanimous belief among attendees that Romney had won.

Still, a Gallup poll released the afternoon before the debate had Obama 4 percentage points ahead of Romney, and if Obama does go on to win in November, some industry members fear a host of new government regulations.

“The industry’s going to have to be very much on alert and very much ready to do battle where they need to so we don’t get regulations that cost us a lot of money,” Choice Hotels International CEO Stephen Joyce said in an interview.

Joyce referred specifically to a pending regulation mandating that hotels install either pool lifts or special entrance apparatuses for every swimming pool and hot tub on their properties to better serve guests with disabilities.

“We’re paying attention and acting quickly, but there are 10 ‘pool-lift’ issues out there,” Joyce said.

Speaking on a panel Oct. 4, Magnuson Hotels CEO Tom Magnuson was more clearly partisan: “If we have four more years of Obama, it’s going to be quicksand,” he said.

But both Baumohl and Joyce pointed out that a Romney victory presented its own set of potential dangers for the industry. Baumohl noted that in addition to government-dependent businesses cutting back on spending and hiring, Romney would be likely to replace Federal Reserve Chairman Ben Bernanke, which could make already anxious bankers all the more skittish and end up further restricting economic growth.

In addition, Romney’s potential impact on hospitality via his immigration policy can’t be overstated, Joyce said.

“I don’t like Romney’s take on immigration,” Joyce said. “I don’t think it’s helpful, and I don’t think it’ll help our industry.”

All the political fretting aside, both Woodworth and Baumohl tried to leave the Lodging Conference with some reason for optimism. While Romney might ostensibly be more business-friendly, Baumohl said, a re-elected Obama might “give ground” to Congress on some issues to help break the current legislative stalemate, while moderate Republicans would likely leverage a defeat to wrest control of the party from its more extreme factions and create a slightly more cooperative GOP majority in the House of Representatives.

“No politician worth his salt will want to have the blood on his hands of a fiscal recession,” Baumohl said, adding that while his firm was on what he called the political “50-yard line,” he thought Obama was likely to win the election.

Woodworth’s optimism took a longer view: “Under any scenario we run, 2014 looks wonderful,” he said.

Follow Danny King on Twitter @dktravelweekly. 
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