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Growth in broader economy will sustain hotels, Marriott CEO argues, dismissing downturn talk


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Growth in broader economy will sustain hotels, Marriott CEO argues, dismissing downturn talk

Presidentand CEO Arne Sorenson disputed an assertionby his counterpart at LaSalle HotelProperties that the lodging industry is in or near a downturn, arguingin an April 28 conference call that growth in the broader economy will sustain thehotel business.

Sorensonargued in the call that the strength of transient demand — in contrast with groupbookings, which have been relatively solid — is the biggest question facing thecompany's business. His comments followed Marriott's first-quarter release, in which the company saidsystemwide RevPAR rose 2.4% in the quarter, and predicted growth for the full yearin the 3% to 5% range.

Stronggroup business gives the company confidence in the remainder of the year, whileimproving GDP growth should buoy transient business, Sorenson said. He noted newlyreleased data that indicated U.S. first-quarter GDP growth was just 0.5%, a figurehe called "anemic" even in the context of a moderate economic recovery.

"Thequestion for all of us, including for you, is, 'Do we expect the U.S. economy toperform at higher growth rates in the quarters ahead?'" Sorenson said. "Wedo. It seems reasonably clear that sentiment was profoundly negative early in thisyear, and that has improved significantly since January.

Ratherthan one consistent narrative across hotels, the U.S. market is best characterizedas "a collection of short stories, but not a common theme, let alone the sameauthor," Sorenson said, adding that the same inconsistency applies to the company'stop corporate clients.

"Whenyou read the press, you can see a number of big companies who are reducing headcountbecause of a struggle to grow top line," he said. "You can see a numberof big companies that have got activist shareholders that are forcing some focuson margins. But then you see a number of companies that are growing robustly."

The dichotomymeans, in part, that companies are fulfilling their commitments to hold corporateevents, thereby maintaining group bookings, but some may be backing off from smaller-scalebusiness travel, hurting transient booking, Sorenson said.

Sorensonwas asked about LaSalle President and CEO Michael Barnello's assessment that theindustry faces a downturn, based in part on rising supply and weaker demand, coupledwith weak GDP growth.

"Idon't see that," he replied, adding that in his time in the hotel business,"there has never been a supply-induced downturn … which means, in effect, thatthere has not been an industry-induced downturn in our industry."

He added:"What causes a downturn is a meaningful change in the demand environment. Andthat change is not going to occur unless we have a meaningful change in GDP growthand economic growth around the world. Period."

As aresult, Sorenson said, "That means, for us, and for all of you, we've got togo back and say, 'OK, what do we think GDP is going to do in the quarters ahead?And the more pessimistic about that you are, the more pessimistic you should beabout this industry."