The lodging industry's encouraging third-quarter performance illustrates that a business travel-driven recovery is underway, underscored by a forecast from upper upscale hoteliers of high single-digit percentage increases for corporate negotiated room rates in 2011.
Average daily rates for U.S. hotels during the quarter increased year over year for the first time in two years, up 1.6 percent, according to STR. Occupancy increased 6.7 percent to 63.9 percent, the highest quarterly occupancy increase that STR ever has recorded, STR senior vice president Bobby Bowers said.
Hoteliers said those occupancy gains came largely from a rebound in corporate transient travel. Hyatt Hotels Corp. CFO Harmit Singh during the company's third-quarter earnings call on Wednesday said rack-rate stays increased by 20 percent year over year during the quarter, while room nights at lower rates booked through third-party Internet channels were down 15 percent. That, combined with a boost in group business, drove Hyatt's average daily rate up 3.1 percent during the quarter. Occupancy was up 6.9 percent, leading to an overall 10.9 percent increase in revenue per available room.
Similarly, Starwood Hotels & Resorts Worldwide executives last week told analysts that the company's occupancy levels are surpassing those from 2007, higher-yielding corporate customers are displacing leisure customers and group business is recovering for 2011 and could match Starwood's 2008 performance. Revenue metrics, including average daily rate, trended higher during the third quarter versus a year earlier.
"The lodging recovery continues unabated by the Euro crisis, U.S. economic jitters or malaise in Japan," said Starwood CEO Frits van Paasschen during an Oct. 28 conference call. "With occupancy rising at or above 2007 levels, it's no surprise rates are in positive territory. Corporate buyers know that occupancy levels have already risen toward prior peaks, especially in gateway cities."
According to STR, rates during the quarter increased by 11.6 percent in New York, 7.2 percent in San Francisco and more than 5 percent in Boston and New Orleans. A few cities had slight decreases, including Nashville, Detroit and Houston.
Marriott International in October reported that corporate demand rebounded by 27 percent year over year during the third quarter, which Marriott executives said would give them leverage to boost 2011 corporate rates. For the quarter, overall Marriott rates in North America were up 1.7 percent year over year, and rates at the chain's full-service and luxury properties increased by 2.6 percent. Globally, rates were up 1.8 percent. As such, revenue per available room was up by 8.2 percent globally and by 7.2 percent in North America. With the boost in business travel, Marriott cut back on discounting and pushed its corporate earnings up by 9 percent in North America during the quarter, according to Marriott chairman and CEO J.W. Marriott Jr.
Marriott, Starwood and Hyatt executives all expect overall corporate rates to be up in the high single digits for 2011. Corporate buyers, however, are pushing for rates to remain flat or come in lower than current levels, Hyatt's Singh said. Hotels also are digging out of a deep hole from corporate rate cuts during the past two years. "Corporate rates are down 15-20 percent of what they were during peak levels," Singh said.
On the group side, Starwood's van Paasschen said, "2011 bookings are picking up nicely, and group business in 2011 could match 2008. This also lays to rest any fears that technology or the downturn itself would permanently change group demand."
According to Starwood CFO Vasant Prabhu, "In North America, September was the strongest group booking month of the year, indicating that companies continue to be willing to make commitments for future years."
Hyatt's group business has boosted bookings at its convention and business hotels, but bookings have been slower to return at resort properties and will continue to be so until unemployment levels begin to decrease, which, in turn, will usher in more leisure travelers, Singh said. Groups also are beginning to spend more during their stays, but only in select categories, he said. "Group customers increased spending in food and beverage," Singh said. "Other areas, such as spa services, remain relatively weak."
Midprice Malaise
Despite occupancy gains, rate growth has been more sluggish at midprice hotels. Wyndham Hotel Group in October reported an 11 percent increase in third-quarter revenues to $203 million, thanks to higher RevPAR, franchise fees and ancillary service fees from its 7,150 hotels. For the quarter, RevPAR was up 6.7 percent compared with last year. Parent company Wyndham Worldwide's CEO Stephen Holmes told investors that the RevPAR improvement resulted from "broad-based occupancy gains," but added that rates also began to stabilize during the quarter.
Choice Hotels International reported flat rates for the quarter. Rates were slightly up at Comfort Inn, but down across the rest of the company's midprice brands. Choice's extended-stay properties had the largest rate drops, down 3.7 percent from the third quarter of 2009. Occupancy and revenue per available room, however, were up across all brands. Choice president and CEO Stephen Joyce in his company's earnings call said corporate travel would boost Choice's recovery, as corporations are putting travelers back on the road and seeking lower-cost properties. However, he said the company is "still a ways from the point in time where we'll see pricing power from demand that allows us to yield higher rates across the board."