Shamed by images of wealthy corporateers cavorting at the expense of ordinary people, U.S. companies canceled an estimated $1 billion worth of conferences in the first two months of this year and trimmed back on others.
Hoteliers are calling it "the AIG effect," after the insurance company that took a public drubbing for spending freely on corporate perks despite its financial turmoil.
"Corporations don't want to have to report lavish spending to the board of directors, even if it wasn't really all that lavish," said Donald Wise, an investment banker who specializes in hotels.
It all started with a kind of Marie Antoinette moment in September, when executives of AIG spent $443,000 at the St. Regis Resort in Dana Point just days after accepting an $85-billion federal bailout.
Reports of the junket quickly dominated the news and became emblematic of the excesses that many believed had brought down the economy. Outrage grew, as people who might or might not understand credit default swaps easily envisioned fat cats eating fancy food, playing golf and getting massages on their dime.
Hotels saw the effect right away. At the Mandalay Bay Resort & Casino in the business meeting mecca of Las Vegas, almost $131 million worth of business events have been canceled so far this year, said Chuck Bowling, executive vice president. The Four Seasons hotel in Los Angeles has taken a 15% hit in its meeting business.
With bookings dropping and self-denial replacing conspicuous consumption, the AIG effect is battering a hospitality business that was already suffering from a slowdown related to the recession.
Nearly 200,000 travel-related jobs were lost in 2008, and an additional 247,000 will be cut this year, according to the Department of Labor. More than 20% of companies have canceled events because of recent media and political attention, the U.S. Travel Assn. said.
In February alone, local hotels lost reservations for events that would have filled 95,000 rooms, according to the Los Angeles Convention and Visitors Bureau.
"The hemorrhaging is just frightening," Wise said.
To win back business, Ritz-Carlton Hotel Co. is offering to donate 10% of the cost of a conference held on its premises to charity. The hope is that the meetings will seem less self-indulgent to corporate watchdogs and boards of directors.
