Leisure travelers return at lower cost
Advertiser News Services
WASHINGTON — Leisure travelers are returning to hotels and airlines, but profits are only returning to one.
Marriott International Inc. of Bethesda, Md., the largest U.S. hospitality company, last week said its first-quarter profit rebounded from the fourth quarter as leisure and group visitors filled more rooms left vacant by homebound business travelers.
But several major airlines including United, Delta, Northwest and US Airways continue to report heavy losses.
The difference is in overhead costs. Leisure customers are getting on planes and staying in resorts, but business travelers — who pay higher rates — aren't flying at anywhere close to pre-Sept. 11 numbers. The resulting revenue declines have hit both industries equally hard, but hotels can cut staff and other costs more easily airlines can.
"Hotels like Marriott and Starwood have done a better job of controlling costs than airlines," said William A. Crow, an analyst with Raymond James & Associates. "Airlines are affected by fuel costs and labor pressures." He added that airline labor costs are higher than those of hotels.
"People are getting on airlines and going to hotels, but they're paying less," he said.
Marriott said that it earned $82 million for the quarter, down 32 percent from the first quarter of 2001, when the company made $121 million. Revenue dropped 4 percent, to $2.3 billion, but that was still better than the fourth quarter, when the company posted its first loss in 11 years.
Meanwhile, airlines last week announced a string of major losses.
US Airways Group Inc. said its loss deepened to $269 million on revenue of $1.7 billion for the first quarter, Northwest Airlines reported a loss, and the biggest airline, American, and the third-largest carrier, Delta Air Lines Inc., also reported wider first-quarter losses. Continental Airlines Inc., the fifth-largest airline, reported a loss after having a profit a year ago.
"Airline traffic has come back nicely, but revenue per ticket is down," said Eric Connerly, a partner at Boston Partners Asset Management LP, which holds several airline stocks. "It's difficult for airlines to raise fares without losing traffic."
Airlines and hotels are struggling to attract business travelers whose employers have significantly reduced travel expenses. Businesses are booking large blocks of rooms for meetings as little as a few weeks in advance, a sign that companies are not confident enough about the economy to make travel plans too early, Marriott executives said.
Marriott said the corporate traveler has been replaced by government workers, cruise-line travelers and other leisure travelers using AAA discounts.
The decline in profitable business travel forced the hotel chain's revenue per available room — a measurement of rate and occupancy — down by an average of 12.7 percent.
One thing that concerns Marriott is that business travel isn't recovering as quickly as leisure travel.
"The business traveler is taking his or her time to come back," said Michael Friedman, an analyst at American Express Financial Corp.
Also, international travelers from Mexico, Britain and Japan are coming to the United States in smaller numbers than a year ago, Marriott CEO Bill Marriott noted.
