AIG's long reach: The ripple effect on the travel industry

If the AIG debacle seems to have calmed down while Congress is in a long spring recess, think again. The ripples are being felt everywhere. The Los Angeles Times reported this week that U.S. companies have canceled about $1 billion worth of conferences already this year, further battering the hospitality industry which was already suffering the effects of the weakened economy. Are CEOs trying to avoid the images of corporate pirates frolicking in bathtubs full of champagne and caviar while the "little people" are forced out of their homes?

Last September people were stunned by the images of AIG executives spending $443,000 at California's Dana Point St. Regis Resort – days after the company had their hands out to accept a taxpayer-funded federal bailout of $85 billion. It didn't take long for the news to fan into public outrage. And boom... hotels began to feel the pinch immediately as events that had been in the planning for a long time were suddenly called off. The Las Vega Mandalay Bay Resort & Casino has seen cancellations of business events worth $131 million in the first couple of months of 2009, Executive Vice President Chuck Bowling told the Los Angeles Times. The Times also reported that the L.A. Four Seasons has seen a 15 percent reduction in meeting business.

The problems the travel industry is experiencing seem to be feeding on themselves. The U.S. Travel Association attributes the cancellations to the political attention and the media's relentless focus on lavish business expenditures, mostly for upper level managers, while unemployment numbers continue to rise. The onslaught of negative press that has made companies afraid to schedule meetings at luxury hotels is adding to the job loss totals as the lack of business conferences and other meetings – on which the hospitality industry relies for survival – have resulted in 200,000 jobs cut last year, and according to the U.S. Department of Labor, the anticipated loss is another quarter million this year.

In an effort to turn public sentiment around, the Ritz-Carlton Hotel Co. has started a program to donate ten percent of the cost of conferences held on the premises to charity. A spokeswoman for the hotel chain said they hope this will focus attention on the Ritz-Carlton's social responsibility and lessen the concern about holding meetings there. Laurence Geller, the president of the company that owns Ritz-Carlton, told the Los Angeles Times that he's noticed a sense of "fear and paranoia" among his customers. "It's a fear of being outted in public."

The U.S. Travel Association has put together what they call a "war room" to, among other things, lobby Congress and the Obama Administration to ease their proposed restrictions on junkets for companies that take financial aid from the fed. The point they are trying to put across is that a lot of lower wage workers, like hotel maids, are being hurt by the meeting cancellations.

The Association's president, Roger Dow told reporters, "Our message is 'Hey, let's tone down the rhetoric. If you want to lose a million more jobs, just keep talking.'"

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