Consumer Confidential: AOL, mortgages, cheap flights

Here's your threadbare-Thursday roundup of consumer news from around the Web:

-- Remember when AOL was, well, AOL? Now the former online giant is struggling to find its place in a cyber-world it once dominated. The company, which is being spun off by Time Warner Inc., is offering buyouts to 2,500 employees -- more than a third of its workforce -- and says it wants to trim costs by about $300 million. So what will the leaner-and-meaner AOL look like? The company hopes to be a content-rich destination, like Yahoo. And look how well that's working out for Yahoo.

-- A record number of homeowners are behind on their mortgage payments. That's the word from the Mortgage Bankers Assn., which says about 4.5 million borrowers are now delinquent. "Job losses continue to increase and drive up delinquencies and foreclosures because mortgages are paid with paychecks, not percentage point increases in GDP," says Jay Brinkman, the association's chief economist. In other words, things won't improve until the employment picture brightens -- and that probably won't happen any time soon.

-- But we'll always have Paris (or wherever). And our friends at JetBlue are offering a one-day sale on international and domestic fares, with prices running between $29 and $129. Not surprisingly, though, there are a few catches. Tickets will be good only for flights between Dec. 2 and Dec. 16, as well as on Jan. 14, 15, 18 and 19. But if that's when you'll be wanting to travel, get 'em while they're hot.

-- David Lazarus

Photo: Henny RayAbrams/AFP/Getty Images

Citigroup strikes deal to sell St. Regis Monarch Beach resort

Citigroup Inc. has agreed to sell the St. Regis Monarch Beach in Dana Point, which earned brief notoriety last year when insurer American International Group chose the resort as the site of a luxury retreat after accepting a huge government bailout.

Citigroup Global Markets Realty Group took over the recession-battered hotel and spa, along with its golf course, in June after its former owners, a joint venture between San Francisco hedge fund Farallon Capital and Newport Beach developer Makar Properties, defaulted on a $70-million Citigroup loan.

The pending sale was first reported by Real Estate Alert, an online newsletter that said the buyers were foreign and would pay a total of about $245 million for the property.

A person briefed on the deal, who was not authorized to speak publicly about it, confirmed to The Times that Citigroup had signed a letter of intent to sell the St. Regis.

The former owners had refinanced the 400-room property with $230 million in senior mortgages in addition to the $70 million owed to Citigroup.

The new buyers, whose identities could not be determined, had agreed to take on the obligation to pay the senior mortgages, leaving about $15 million for Citigroup, Real Estate Alert said.

-- E. Scott Reckard and Roger Vincent

Photo: At the St. Regis Monarch Beach. Credit: Tim Rue / Bloomberg News

Cruise ship giant Carnival posts earnings surprise as bookings rebound

Cruise ship operator Carnival Corp. today reported better-than-expected third-quarter earnings and said bookings continued to improve, another sign that consumers are opening their wallets a little wider.

From Reuters:

Carnival lifted its 2009 earnings forecast and said ticket prices for its cruises were stabilizing.

Bookings for the next three quarters were 19% ahead of 2008 levels, spurred in part by heavy discounting. Travelers are also booking cruises earlier, which has helped rates stabilize, Carnival noted.

Chief Operating Officer Howard Frank said during a call that rates were unlikely to fall further in the fourth quarter, given the strength of late bookings.

"For a limited number of itineraries ... we have been able to move prices up," Frank said.

The Miami-based company’s stock gained $1.52, or 4.8%, to $33.52 today, although it pulled back after trading as high as $34.95. The shares are up 38% this year after plunging 45% last year.

Carnival’s rival, Royal Caribbean Cruises, rose 73 cents, or 3.1%, to $23.97, a 52-week high.

Carnival earned $1.07 billion, or $1.33 a share, in the quarter ended Aug. 31. That was down from $1.35 billion, or $1.65 a share a year earlier, but well above analysts’ average estimate of $1.18 a share. Sales were off 14% from a year earlier, to $4.1 billion.

A big dive in fuel costs compared with a year earlier helped the bottom line last quarter.

The company, whose brands include Holland America, Princess Cruises and the Cunard Line, raised its full-year profit forecast to a range of $2.16 to $2.20 a share from a previous forecast of $2 to $2.10.

Still, Frank told analysts that Carnival was cautious about 2010 because of expectations that high unemployment would hinder consumer spending.

He specifically cited pricing for the company’s Mexican Pacific coast cruises as a "challenge" because of the "significant economic slowdown in Southern California."

-- Tom Petruno

Photo: Carnival's newest and largest ship, the Carnival Dream. Credit: Fincantieri Shipyard

The dollar's in the dumpster, and nobody's worried -- for now

"A strong dollar is in America’s best interest," the Bush and Obama administrations have repeatedly assured us.

And yet for most of this decade the dollar has been sliding. Now, the greenback again is one of the world’s currency weaklings. But global financial markets, and governments, seem to be taking it in stride.

The dollar has taken a renewed pounding over the last two weeks, driving the DXY index -- which measures the buck’s value against six other major currencies -- to nearly a one-year low.

The euro has been the big winner as the U.S. currency has lost ground. The euro was at $1.47 on Thursday, its highest level since last September and up from $1.42 on Sept. 1.

But the dollar’s troubles haven’t set off alarm bells in Washington. Nor have the Chinese raised a new stink about the buck’s weakness and the devaluation threat it poses to their American asset holdings.

The lack of a ruckus this time reflects that the dollar is dropping for the right reasons, currency analysts say.

For one, investors worldwide are feeling better about the global economy, which is pulling money out of the classic hiding place of the dollar in favor of  riskier assets, including emerging-market stocks.

"A lot of money is coming out of safe-haven dollar bets," said Michael Woolfolk, senior currency strategist at Bank of New York Mellon.

Investors and traders also are reacting normally to the interest rate differential between the U.S. and other countries: With U.S. short-term interest rates lower than those of most other nations, and the Federal Reserve in no hurry to raise them, the dollar naturally is at a disadvantage to currencies in countries with higher rates.

Yet even as the greenback has lost ground in recent weeks, there doesn’t appear to be a rush out of U.S. Treasury bonds by foreigners whose assets are devalued with each tick lower in the dollar. The yield on the 10-year Treasury note, at 3.39% on Thursday, was unchanged from its level on Aug. 31.

What's more, Wall Street has continued to rally, pushing major market indexes to 11-month highs.

The dollar's decline "doesn't seem to be impacting U.S. stock or bond markets," says Sophia Drossos, a currency strategist at Morgan Stanley.

Meanwhile, there are some key constituencies for whom the buck's losses are a blessing. U.S. exporters obviously love a sliding dollar because it makes their products cheaper for foreign buyers. And because most commodities are priced in dollars, oil and other raw materials get cheaper for countries with strong currencies.

At the same time, discounted U.S. goods and services become more of an attraction for foreigners looking to vacation here.

For U.S. investors who own foreign stocks and bonds the dollar's drop this year has brought a windfall, just as it did for most of 2002 through 2007. A lower dollar means securities denominated in strong foreign currencies are worth more when translated to dollars.

The Canadian stock market is up 28% in Canadian dollars this year, but it's up 47% in U.S. dollars. The Australian market is up 26% in Aussie dollars -- and 56% in U.S.

But as with all currency moves, there are losers in the buck's stumble. Foreigners' U.S. assets are declining in value (or, in the case of stocks, aren't rising as much). At some point, foreign exporters in Europe, Japan and elsewhere are likely to start screaming about an unfair trade disadvantage. If they're forced to mark up prices of their goods, we'll import inflation. Lastly, Americans who were thinking about foreign vacations may have to reconsider.

The big question is how low the dollar will go. For now, it's still above the worst levels (or best levels, depending on your perspective) of 2008. But it's getting closer to those depths. If it breaks through, there will be a new torrent of speculation about the dollar losing its status as the world's primary currency, and about the risk that that would entail for an economy so dependent on foreign creditors.

Americans have been warned for decades about a possible dollar panic if the world were to lose faith in us. The current decline is no panic. Neither we nor the rest of the world can afford for it to turn into one.

-- Tom Petruno

 

 

Pritzker family plans IPO of Hyatt Hotels

Hyatt Hotels Corp. wants to make a second run as a publicly traded firm: The Chicago company on Wednesday filed for an initial public stock offering, hoping to raise as much as $1.15 billion.

An IPO could be another big payday for Goldman Sachs Group: The investment bank took a 7.5% stake in the firm in 2007. The Pritzker family, which founded the hotel chain in 1957, owns most of the rest of the business.

As of June 30 the company owned, managed or franchised 413 hotels worldwide, encompassing about 120,000 rooms.

Hyatt earned $168 million in 2008 on sales of $3.8 billion. Revenue had risen from $2.7 billion in 2004. But business has plunged this year with the recession. Sales in the first six months tumbled more than 18% from the same period in 2008, to $1.6 billion.

A stock offering could give the Pritzkers a load of capital to use to acquire choice properties as the recession forces industry consolidation. It also could give family members another way to convert their hard-asset wealth into fast cash.

The deal would involve the sale of Class A shares, which would have one-tenth the voting power of the Class B shares retained by the Pritzkers. So the family would remain very much in control of their empire.

The company didn’t specify the number of shares it hoped to sell, or give an expected price range. The IPO would be handled by Goldman Sachs, Deutsche Bank Securities and JPMorgan.

Hyatt had been a publicly traded firm from 1962 until the Pritzkers took it private again in 1979. The family’s international hotel operations were in a separate public company from 1968 to 1982.

The company hopes to trade on the New York Stock Exchange under one of the few remaining single-letter ticker symbols: H, of course.

-- Tom Petruno

Photo: The Hyatt Regency Waikiki. Credit: Hyatt Hotels

Marriott says business travelers still in short supply

Hotel giant Marriott International on Thursday said it was seeing no sign of an upturn in business travel demand that would signal an improving economy.

The company, whose brands include Marriott, Ritz-Carlton, Renaissance and Courtyard, reported a 56% drop in second-quarter operating earnings, to $84 million, or 23 cents a share. Revenue sank 19% to $2.57 billion.

"In North American lodging we continue to see signs of stabilization in occupancy levels. Unfortunately, we aren’t yet seeing more corporate travelers and business meetings returning to our hotels," said Arne Sorenson, Marriott’s president, in a conference call with analysts and investors. "Instead, our mix of business remains skewed toward price-sensitive leisure travelers."

In other words, Marriott is at the mercy of people looking for bargains.

"With occupancy levels stabilizing in the low- to mid-60s [percentage level], pricing has become a greater challenge," Sorenson said. "Everyone is price-sensitive today, not just vacationers."

For the Marriott brand, room nights sold to corporate travelers plunged 18% in the quarter from a year earlier, while room nights for leisure travelers were up 12%, the company said.

Carl Berquist, Marriott's chief financial officer, said meeting planners and bookers were "sitting on the sidelines waiting to see if they can get a better deal."

That's a natural reaction in a bad economy, but it's the kind of deflation mentality that ought to give the Federal Reserve the willies.

Marriott also threw cold water on the idea that business might be holding up better overall in emerging markets overseas. (NOTE: The company's results were announced before the bombings Friday at Marriott hotels in Indonesia.)

In China, "Their economy obviously is better-performing and forecasted to be better-performing than much of the rest of the world," Sorenson said. "But you’ve got still a tough travel environment, which is compounded by meaningfully higher supply growth in China than we’ve seen probably anywhere else.

"And so you look at the RevPAR numbers [revenue per available room] actually for that market, and they are not meaningfully better, and in fact in many respects are worse in many months than we’ve seen in the United States."

Travel also has been hit hard in some foreign markets by the H1N1 flu outbreak.

Marriott said it was hard-pressed to come up with an earnings forecast for 2009 because of economic uncertainty, but it offered a range of 76 to 86 cents a share in operating results -- down from the range of 88 cents to $1.02 it had forecast in April.

The company’s stock sank $1.36, or 6.2%, to $20.44. It fell as low as $12.58 in March.

-- Tom Petruno

Photo credit: JB Reed / Bloomberg News

MGM Mirage bets it's time to raise Vegas room rates

Deflation, we're told, is a bad thing. Unless it's deflation of ridiculously high prices -- say, for Las Vegas hotel rooms.

Hotel prices came down in Vegas over the last year as the economy crashed and convention-going withered. Now, some Strip giants including MGM Mirage say the deep-discount days are over.

But the Las Vegas Sun has a long story today questioning the wisdom of boosting room rates. From the Sun:

MGM Mirage executives said demand for the company’s hotel rooms is high enough to warrant an increase in room rates, which have plummeted during the downturn.

"The weekends are consistently solid now," MGM Mirage CEO Jim Murren said during a conference call last week to discuss first-quarter earnings. "Even when we don’t have a major event we are able to occupy rooms at a solid level."

In January, MGM Mirage’s hotels had an occupancy rate in the high 70s -- a respectable number for many major cities but poor for Las Vegas, where hotels have historically operated at higher than 90% occupancy. That figure has risen each month this year, reaching 95% in March and 97% in April, in line with a year ago, before business worsened.

Phil Ruffin, who bought the Treasure Island hotel/casino from MGM Mirage in March, says he also plans to raise rates, according to the Sun.

"I’m not going to give rooms away," he said. "That’s a heads-in-beds philosophy. I don’t want the $50 customer."

But the Sun wonders whether tourists will balk at higher room prices with frugality now a consumer badge of honor:

Whether that strategy works will depend on the reaction of recession-battered tourists such as Judy Del Vecchio, 51, an advertising employee who paid $631 for a five-night stay with her husband in a suite at the Monte Carlo last week.

"This recession has scared people -- they have a whole different way of thinking," Del Vecchio said during a break between fountain shows in front of the Bellagio. "They’ll come if they know they’re getting a bargain."

Cassidy Miller, 27, of Bloomington, Ill., stayed with a friend at Caesars Palace for five days last week for $413, including airfare, and has already booked her next trip: a $580, five-night stay at the Bellagio, including air.

Miller, who typically visits Las Vegas once a year, isn’t stuck on the destination. "Paying $700 for the same trip would start turning me off -- I can do Mexico for that amount. But these prices are ridiculous. You can’t afford not to go."

Not surprisingly, the Sun's unscientific online reader poll with the story found that 85% of the 500 respondents said raising room rates was a bad idea. You'd expect that response not only from tourists but also from hotel/casino workers worried that higher rates could choke off a business recovery.

Given the huge number of new rooms due to hit the Vegas market later this year, the gaming companies may not have much flexibility on rates beyond summer, in any case.

-- Tom Petruno

Photo: Vintage Vegas (2007, that is). Credit: Allen J. Schaben / Los Angeles Times

Selling abates in Mexican markets and U.S. travel shares

Mexico's financial markets have stabilized today after Monday's dive on fears of economic calamity from the swine flu outbreak.

U.S. airline and hotel stocks, which also plunged on Monday, are mixed.

The Mexican stock market's IPC index, which slid 3.3% on Monday, fell as much as 1.6% early today but was off just 53 points,or 0.2%, to 21,774 at about 11 a.m. PDT.

The peso has rallied back to 13.87 per dollar after tumbling to 14.05 per dollar on Monday from 13.34 on Friday.

From Bloomberg News:

There is a sense "the government is taking the necessary measures so that things return to normal" by next week, said Antonio Magana, head of the foreign-exchange trading desk at Grupo Financiero Interacciones in Mexico City. "We’re going to begin to see less negative news."

Mexican authorities have ordered all schools shut nationwide until May 6 and some businesses to close as the number of cases suspected to be swine flu rose. The government has advised people not to congregate in large groups and to avoid shaking hands and kissing. The army is distributing face masks throughout Mexico City, where the disease has been concentrated, and the government has said it has enough antiviral medicine to treat the flu.

Facing a worsening economy even before the flu outbreak, Mexico earlier this month arranged with the International Monetary Fund for a standby $47-billion credit line. The line could be used to help defend the peso, which had been sinking fast in February and March and reached a record low of 15.6 per dollar on March 9.

The spreading disease "raises the odds of tapping the facility," Eduardo Levy-Yeyati, head of emerging-market strategy at Barclays Capital Inc. in New York, told Bloomberg. "The flu increases growth risks and currency pressures."

As for U.S. travel-related shares, Continental Airlines was up 18 cents to $11.26 at about 11 a.m. PDT, after tumbling 16% on Monday. AMR, parent of American Airlines, was up 14 cents to $4.84. But United parent UAL was off 19 cents to $5.31.

Carnival Corp., the cruise line operator, was up $1.33, or 5.4%, to $25.92 after sliding 13.5% on Monday.

-- Tom Petruno

Photo: Subway riders in Mexico City today. Credit: Joe Raedle / Getty Images

Flu fears hit Mexican markets, but global reaction is muted

Mexico's stock market and U.S. airline shares are taking a pounding today on fears about the potential economic impact from the swine flu outbreak, but markets overall are staying mostly calm.

Gold, the usual winner when panic breaks out, got a modest early lift but has given it up.

Some analysts say the fast response from major governments to the swine flu threat is giving investors comfort for the moment.

"While the outbreak has potential to create additional problems for the global economic slowdown, so far officials have responded quickly and decisively to the outbreak, something that did not happen during the SARS outbreak" in 2003, currency analysts at Brown Bros. Harriman said in a note to clients today.

In Mexico, the epicenter of the flu crisis, the IPC stock index was down as much as 5.1% earlier today, but at about 10:10 a.m. PDT, the index had pared its loss to 913 points, or 4%, to 21,668. That put it back into the red year-to-date, off 3.2%.

"The flu outbreak comes at a time when the Mexican economy is already weakening rapidly -- retail sales fell for the last 6 months -- and is likely to weigh further on the tourism industry and overall consumer spending," said Vassili Serebriakov, a currency strategist at Wells Fargo Bank.

The peso has slumped 3.7%, to 13.84 per dollar from 13.34 on Friday.

But the dollar is only modestly higher against other major currencies, indicating there’s no global rush to the usual haven of the buck.

Likewise, U.S. Treasury bond yields are only a bit lower, and gold futures are off $3.60 to $910.50 an ounce in New York.

On Wall Street, the Dow Jones industrial average was off 12 points, or 0.2%, to 8,064.50 at about 10:10 a.m. PDT, after gaining 1.5% on Friday.

But airline shares were broadly lower -- the inevitable knee-jerk reaction to concerns about a potential depressant effect on global travel.

Continental Airlines was down $1.42, or 11%, to $11.83. American parent AMR was off 57 cents, or 10.5%, to $4.85; Delta Air Lines was down $1, or 12.7%, to $6.88.

Carnival Corp., the cruise company, also is being hammered, off $3.36, or 11.8%, to $25.07. Hotel stocks, including Starwood Hotels and Wyndham Worldwide, also slumped.

-- Tom Petruno

Photo: A tourist arriving in Miami after a flight from Mexico City. Credit: J. Pat Carter / Associated Press