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One Sector Already Taking a Hit from Sequestration

Chris Preston

At first glance, it doesn’t appear as if sequestration has had any impact on the market. After all, stocks have risen 2.5% since the sequestration deadline came and went without a deal on March 1.

Look closer, though, and you’ll find areas where the $85 billion in government spending cuts are already taking their toll.

Travel is one area that has taken an early hit since the sequestration cuts went into effect. In the five weeks since, a number of airline and hotel stocks have hit the skids. Delta Airlines (NYSE: DAL), Hyatt Hotels (NYSE: H) and Expedia (NASDAQ: EXPE) are among the travel stocks that have underperformed the market.

Things could get worse. According to a story by Reuters, government agencies are scaling back on travel expenses this year. NASA, for instance, will save $10 million in travel costs by forgoing conferences such as this week’s National Space Symposium, which the organization will not attend for the first time in years.

Airlines, meanwhile, are planning to furlough air traffic controllers and make cuts in customs and border control. Those are the types of changes that lead to longer lines and more delays – things that could convince some customers to stay away.

As for hotels, government travel cuts are already being felt in the one place you’d expect – Washington. Government employees make up roughly 30% of the business in D.C., according to one hotel analyst. Since January, that business has apparently dipped. Eventually, that will spread to other cities beyond the Beltway, as the government continues to tighten its belt.

Absent a compromise, sequestration belt-tightening will continue throughout the year. And that will weigh even more heavily on travel stocks.