Hilton, Marriott, Starwood Show Strong Q3 Earnings

Hilton Hotels Corp., Marriott International and Starwood Hotels & Resorts Worldwide last month each announced third-quarter earnings that included significant year-over-year increases in occupancy, average daily rate and revenue per available room.

The results are the latest evidence that the lodging industry rebound, which began tentatively at the end of 2003, has proven sustainable. The industry turnaround creates more pressure on travel buyers in the midst of final negotiations with hotel companies on 2005 negotiated rates.

At Hilton, revenue per available room rose 7.3 percent for company-owned hotels, while occupancy rates increased 2.7 percent and average daily rate rose 3.5 percent. At Marriott, RevPAR at North American hotels jumped 7.7 percent, ADR 3.9 percent and occupancy 2.6 percent. Starwood's increases were even more dramatic. RevPAR for owned hotels worldwide, for example, jumped 12.3 percent and ADR 8 percent.

These results, furthermore, correspond with overall U.S. industry results for the quarter released by Smith Travel Research. Industry RevPAR grew 6.4 percent from the previous third quarter, according to STR, while occupancy and ADR increased 2.6 percent and 3.6 percent, respectively.

Reflecting similar comments from fellow hotel CEOs, J.W. Marriott Jr., Marriott chairman and CEO, attributed the quarter's positive showing to strong demand, including from business travel, which allowed for more than minimal rate increases. In addition, an increasing amount of RevPAR growth is coming from rate, rather than occupancy, which means greater profits. At Marriott, "third-quarter North American room rate growth exceeded occupancy growth for the first time since early 2001," Marriott said.

Smith Travel president Mark Lomanno noted that the fourth quarter had started off positively as well. "October also is shaping up to be a good month. If current trends hold, we anticipate full-year 2004 industry RevPAR growth could be over 6 percent," he said.

While Wall Street analysts basically shared the hotel companies' optimism, CIBC World Markets analyst David Katz expressed concern that the group segment of the business, which is critical to Hilton, Marriott and Starwood, has underperformed relative to transient business travel.

"Group sales continue to lag both the transient and leisure segments," Katz said. "This is because of strong growth in supply coupled with flat data on the number of exhibitors and convention attendees." He does not expect the group segment to improve meaningfully for 12 to 18 months.