Ms. Hendrix: You can't really paint the cruise lines and the lodging stocks with the same leisure brush because with Starwood, 80% of their business is business travel; and with Marriott, 70% is business travel. As far as leisure travel is concerned, what we've seen over this summer is that the leisure consumer definitely wants to travel, and that gets back to the adage that Americans have gotten used to their vacations, they deserve their vacations and they want to travel. Looking at the big picture, I think what surprised a lot of people is the extent to which they would travel - the demand. The issue with the demand is that it was stronger than expected because prices were so low. So the low pricing stimulated, I believe, greater demand in lodging than people expected; in the summertime you see a lot more leisure travel. Where we are now in the fall for the lodging stocks, we're past Labor Day; it's back to school, back to business. And what does the business traveler look like this fall? No one has any data yet to indicate what that is. Common sense would certainly tell you that occupancy rates in business travel will be higher year-over-year, demand will be higher year-over-year. It's just that pricing has dropped so far, will higher demand be able to drive higher pricing? Is it elastic? We don't know. We don't know what RevPAR is going to look like in the lodging sector in the fall and what it is going to indicate for demand.
The cruise lines are a little bit different because that continues to be leisure, obviously, all year long. Again, prices are very, very low. The fourth calendar quarter is always the toughest for the cruise lines anyway because you're back to school, and then you have Thanksgiving and Christmas. So I think there is a pull during this time, meaning that the travel agents need to pull the consumer through the channel during this seasonally slow time. But the companies have given color. I think Micky Arison, the CEO of Carnival, said it the best on the last conference call when he said, "Look, if you don't book a cruise now, you are not going to get these prices next year because demand is so strong at these levels." The big question people have, whether it's in lodging or cruise lines, or retail or restaurants, or any kind of consumer sector, is in this new environment that we are in, what is the elasticity of demand? And as demand increases, and as industries and businesses raise prices, when does the consumer slam the brakes? So that is the big unknown right now, and that's something that everyone's kind of waiting to see and that could really differ from expectations or surprise people. So to answer to your broader question, the leisure consumer is definitely spending money, but they are spending money because they recognize a value. And the question is what happens when that value starts to erode? Are they going to continue to spend at the same velocity that they did before?
Tickers included in this excerpt: CCL, CHH, HOT, HST, MAR, MTN, RCL
For more information call (212) 952 7433. The Wall Street Transcript does not endorse any of the comments made by interviewees, and does not make stock recommendations.