Hotels Report Strong Q4 Earnings, Predict Slower Growth In 2008

Hoteliers reported strong revenue performance in fourth-quarter 2007 earnings reports released in the past few weeks. Forecasts for the coming year, however, remain uncertain, as larger economic factors that could hurt the lodging industry loom.

Hotel companies generally foresee more moderate growth in 2008. Marriott International expects RevPAR growth in 2008 of 3 percent to 5 percent as transient demand softens, particularly in the leisure segment. Choice Hotels' forecast called for RevPAR growth of 2 percent in the first quarter of 2008 and 3 percent for the full year.

Bob Brindley, vice president of BCD Travel's Advito consulting division, said such economic factors as rising fuel costs and housing market woes control the pricing environment buyers will face later this year.

"Everyone's waiting for the pendulum to start swinging toward the buyer," Brindley said. "If the economy stays fairly level, the forecast we've put together will hold true, with the type of percentage increases we've seen in rates during the 2008 negotiating season. If the economy starts to soften, it could turn around pretty quickly in favor of the buyer."

Marriott's results, released Feb. 14, indicate soaring revenues overseas helped propel an overall strong revenue performance for both the fourth quarter of 2007 and the full year. Worldwide revenue per available room was up 9.2 percent in the quarter, including increase of 6.2 percent in North America and 15.5 percent elsewhere.

For the full year of 2007, Marriott said its rates increased by 7.5 percent, it opened more than 31,000 rooms and its development pipeline reached a record 125,000 rooms. This year, Marriott expects to open another 30,000 rooms, CFO Arne Sorenson said. The credit crunch is unlikely to heavily affect that pipeline, as 60 percent of those hotels are domestic limited-service properties, in which financing comes from a local lender, and an additional 20 percent are in Asia and the Middle East, where debt financing is not an issue, Sorenson said.

Earnings for the quarter dropped to $176 million, down 20 percent from the $220 million reported in the fourth quarter of 2004. Marriott attributed the drop largely to the closing of its synthetic fuel business. Excluding the impact of discontinued operations, the company's earnings were up 19 percent.

InterContinental Hotels Group's global RevPAR grew by 7 percent in 2007 compared with 2006, and total gross revenue was up 15 percent to $18 billion. IHG also added 28,848 rooms, a 5 percent increase, and its signings for new rooms were up 22 percent to 125,533 rooms in 873 hotels.

Wyndham Worldwide reported 13 percent growth in earnings in the quarter to $104 million, compared with $92 million in the fourth quarter of 2006. Revenues were up 16 percent to $176 million, and systemwide RevPAR was up 5.9 percent. During the quarter, Wyndham opened about 19,000 new rooms and ended it with more than 105,000 in its pipeline. RevPAR for the full year increased 5.3 percent.

Choice beat analyst expectations, also reporting 13 percent earnings growth for the quarter to $27.9 million, compared with $24.6 million in the fourth quarter of 2006. Revenues were up 18.6 percent to $142.5 million, and RevPAR was up 4.6 percent.

For the full year, RevPAR increased by 4.7 percent and by 5.2 percent in Choice's midprice without food and beverage brands, which include Comfort Inn, Comfort Suites and Sleep Inn. Choice also increased its number of U.S. hotels under construction by 17 percent to 1,004, and it worldwide pipeline now stands at 1,093 hotels with 87,982 rooms.