New York—Most hotel executives and investors expect strong occupancy and revenue levels to continue through 2007, according to a survey of more than 170 hospitality executives, investors and real estate professionals attending the New York University 27th Annual International Hospitality Industry Investment Conference here this month.
Optimism dominated the conference and survey results reflected the extent of continued expectations: 54 percent said the market will sustain occupancy and revenue levels through 2007, and 20 percent expect the momentum to continue through 2008.
"The business customer has come back," Carlson Hospitality Worldwide president and CEO Curtis Nelson told attendees, who clearly agreed. Just over half of survey respondents cited the business travel rebound, while 27 percent cited pent-up demand as the primary factor for a "faster than anticipated recovery of the U.S. hotel industry back to 2000 levels."
Hoteliers have reason to be sanguine, according to PricewaterhouseCoopers projections released during the conference. They point toward strong occupancy, record high room rates, revenue per available room growth and growing profits in 2005 and beyond.
"PricewaterhouseCoopers forecasts industry profits to reach $20.8 billion in 2005, the highest level since 2000, and only $1.7 billion below the record set in 2000," the PwC report said. "In 2006, profits are expected to reach a new record high of almost $25 billion."
Citing the midyear projections, Bjorn Hanson, head of PwC's hospitality and leisure practice, told conference attendees that occupancy rates this year look like they will average 63.4 percent, which would mark a year-over-year increase of 3.3 percent and bring occupancy to its highest level since 1997. PwC expects the trend to continue through 2007, growing to 64.5 percent and 64.9 percent, respectively, in 2006 and 2007. RevPAR, meanwhile, is expected to jump 7.8 percent this year, yielding stronger than anticipated profits.
The good news for the lodging industry will translate into bad news for buyers: PwC forecasted record high average room rates of $89.97 this year. "At a growth rate of 4.3 percent, this is the strongest increase since 2000, when the rate was 5.4 percent."
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As the hotel market at large is expected to pose negotiating problems to travel buyers, New York City should be an even more challenging environment. The 2005 Manhattan Hotel Market Overview, which hospitality consulting firm HVS International in conjunction with NYU presented during the conference, points toward a robust recovery. The New York market is expected to exceed the overall domestic hotel market. The report forecasts RevPAR in Manhattan to increase nearly 17 percent by the end of this year over last, as occupancy and average rates exceed levels recorded in 2000.
With demand for New York hotels swinging upward, an additional 2,668 rooms will enter the market through 2007, the report said.
"International visitors in New York City spend 45 percent of all visitor spending," said Jonathan Tisch, conference chair and chairman and CEO, Loews Hotels.
Yet, in light of biometric passport requirements and other initiatives led by the U.S. government, Tisch railed against efforts and perceptions that may make foreign travelers reluctant to visit the United States, especially New York, which is dependent on international travelers. "Only a small group of people are concerned about this," he said. "It needs to move out into the mainstream."
Cendant Hotel Group chairman & CEO Steven Rudnitsky concurred. "The negative perception of the U.S. is a real concern to the industry," he said.
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The success of hotel companies following years of sluggish performance is resulting in more hotel amenities, from the proliferation of high-speed Internet and checkin kiosks to MP3 player plug-ins for alarm clocks, among many others, hotel CEOs said during the conference.
Christopher Nassetta, president and CEO of Host Marriott Corp., said that in recent years proprietary consumer research capabilities among hotel companies has grown more robust, allowing hoteliers to keep their hands on the pulse of guests' wants and needs. According to Nassetta, "Answering the question, 'what do you want as a customer of our hotel?' That's been the biggest innovation."
Fairmont Hotels announced during the week of the NYU conference that it will install self-service checkin kiosks in a yet-to-be determined number of its North American properties. The Toronto-based luxury hotel operator this month launched its first kiosk at its hometown Fairmont Royal York, with others to follow by year-end.
A spokesperson said Fairmont initially would focus kiosk efforts at city-center properties, with the potential to expand to North American resorts. Fairmont senior vice president of sales & marketing Jeff Senior said in a statement that the kiosk functionality is geared largely toward corporate travelers, which the company said account for about 50 percent of its business.
In addition to allowing travelers to check in, check out, receive room keys and enroll in Fairmont's loyalty program, the company said the kiosks boast several other features, such as guest room selection, which allows travelers to "select a hotel room of their liking from a graphical map" and group travel functionality that gives meeting planners the opportunity to show customized messages and updated meeting agendas to attendees. Fairmont said it partnered with IBM to develop and implement the kiosk technology.
"We've always had amenity creep," said Laurence Geller, president and CEO of Strategic Hotel Capital. "The question is, when do you start to take things away?"
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While hotel CEOs contend the merchant model won't be going away anytime soon, the lodging industry increasingly is taking control of relationships with third-party distributors.
"The merchant model is here to stay," Carlson's Nelson said. "It's a win-win role for hotel companies that have excess inventory, but if you let third parties have lower rates, you give away your pricing power. Smarter hotel companies are learning to use the merchant model to their advantage." Nelson added that he expects other distribution channels to develop.
Hilton Hotels Corp. is among the companies taking a more hands-on role in managing inventory. The company early this month enacted accreditation standards that third-party Internet-based distributors must meet to offer Hilton's merchant inventory
(BTN, June 6)."We, as the hotel operators and brands," Strategic Hotel Capital's Geller said, "let this get out of control."