Marriott International, whose financial performance generally sets the tone for the hotel industry, this month reported strong revenue growth for the second quarter of 2007, but at the same time continued to lower its domestic revenue growth expectations for the rest of the year.
Boosted by higher room rates, total revenues rose to $3.2 billion for the quarter, up 11 percent from the $2.9 billion in revenues reported in the second quarter of 2006.
Revenue per available room was up 7.5 percent worldwide, and average daily rates rose 7.4 percent. Occupancy also increased slightly to 76 percent.
"A continued favorable pricing environment, combined with unit growth, increased property-level revenues," Marriott chairman and CEO J.W. Marriott Jr. said in a prepared statement. "Using technology and leveraging system size to improve efficiency, hotel profits continued to climb."
In a July 12 conference call to investors, Marriott CFO Arne Sorenson said that improved revenues from corporate travel were a factor in the company's strong performance.
"We sold more high-end corporate rated business and offered fewer discounts to corporate customers," Sorenson said. "Overall, our full-service hotel transient business firmed during the second quarter and continues to look good going forward."
RevPAR growth from meetings and group travel were not as strong in the quarter. Sorenson expected that to turn around in the second half of the year, a forecast based partially on the number of group bookings already in place.
Several key U.S. cities boasted a particularly strong performance for Marriott, particularly New York, Denver, Chicago and Dallas. Several international cities also showed sizeable RevPAR growth. RevPAR grew by 46 percent in Moscow, 40 percent in India, 17 percent in the Middle East and 13 percent in Asia, Marriott said.
Even with the strong showing, however, Marriott tempered the range of its North American RevPAR growth expectations for the year to between 6 percent and 7 percent, compared to the 6 percent to 8 percent range the company forecasted in the previous quarter. That range already had been slightly lowered from projections at the start of the year
(BTN, May 7). The move wasn't a surprise to some analysts.
"Back in December, we said many hotels will have to lower RevPAR expectations," said Bjorn Hanson, principal of PricewaterhouseCoopers' hospitality and leisure group. "Many of their RevPAR expectations were not achievable."
Despite these growth expectation adjustments, hoteliers and analysts have said the hotel seller's market, which this year drove up corporate negotiated rates by an average of about 6 percent, will continue for a few more years at least
(BTN, June 11). Part of the optimism in Marriott's case came from the expected boost in group travel, Sorenson said.
In addition, hoteliers and analysts have said that Hurricane Katrina's aftereffects negatively skewed year-over-year comparisons in the first half of the year, with displaced Gulf Coast residents and emergency workers inflating demand in early 2006. Although not all analysts agree on Katrina's impact on performance metrics, it will no longer be a factor in the months ahead.
The biggest factor in predicting the hotel industry, however, is the overall economy, Sorenson said, noting that so far, those numbers bode well for hoteliers.
"When we look at that data today, we don't see any reason to presume we don't have a year's growth going forward," according to Sorenson. "We're relying on what economists say and in the short term."
Marriott was the first major hotel company to report its results for the quarter. The rest are scheduled to report results at varying points during the next few weeks, with the exception of Hilton Hotels Corp., which canceled its July 31 earnings call in light of its impending acquisition by The Blackstone Group
(BTN, July 9).