Looming prospect of mandatory spending cuts further threatens business travel sector
Thursday, February 21, 2013
The tense discussions between the Obama administration and Congress toward the end of last year had many investors, executives and working people concerned. Although the immediate danger posed by the so-called "fiscal cliff" was narrowly averted, the specter of financial gloom has once again reared its head. If Congress fails to act by March 1, mandatory spending cuts necessary to control the rapidly escalating national deficit could have potentially disastrous effects on the economy, including the business travel sector. According to Business Travel News, some major hotel chains are concerned that the decline in demand could be a serious setback for the hospitality industry.
The news source reports that Marriott, one of the larger service providers in the hotel sector, fears the mandatory spending cuts, known as sequestration, could have a detrimental impact not only on demand for corporate suites in its properties, but the wider business travel sector in general. Should sequestration go into effect March 1, the impact of large-scale layoffs in the public sector could substantially diminish demand for hotel inventory.
According to Arne Sorenson, president and chief executive of Marriott, government employees make up approximately 12 percent of the corporate market for hotel rooms in the Washington, D.C., area alone. If Congress cannot agree on a solution to prevent sequestration, many government agencies could be faced with the prospect of reducing their workforce. This, in turn, is likely to have an effect on the hospitality sector not only in the nation's capital, but across the country.
"Government contractors will look early in the process to cut travel expenses, so that is very much a connection to our industry, and we'll be hit a little harder than the industry on average," Sorenson told the news source. "There's also another debt ceiling issue, and as we watch it, we don't see there's much reason for optimism and a quick resolution."
In light of the situation, many federal agencies and private companies may seek out more cost-effective alternatives to chain hotels, such as corporate lodging and serviced apartments.
The domino effect
According to CBS News, if an agreement is not reached by March 1, the cuts would not take effect immediately. However, the effects would be felt across several sectors in the mid-term, as the Transportation Security Administration would have to lay off thousands of workers, resulting in potentially lengthy delays at the nation's airports.
Additionally, around 70,000 children would be dropped from the Head Start program, and approximately 600,000 women and young children would no longer be able to receive assistance from nutritional initiatives.