Despite an uncertain economy, chief executives of several global multibrand hotel companies said their sales teams later this year would push for corporate transient rate increases in the high-single-digit percentages when 2012 contract negotiations commence.
Speaking Monday at a press conference at New York University's Hospitality Industry Investment Conference, Hilton Worldwide president and CEO Christopher Nassetta said his sales team this week would begin discussing strategy at its national sales conference. High-single-digit percentage rate increases "are where it ought to be," he said, "given the base of demand we have on the books, particularly very strong group demand for next year."
Incoming InterContinental Hotels Group CEO Richard Solomons concurred that increases at that level "would be great," though he said market share also would be a priority in negotiations. IHG will continue to promote a dynamic pricing model, which Solomons said has improved market share, and attempt to shift corporate travel to the recently revamped Holiday Inn brand.
Starwood Hotels & Resorts Worldwide president and CEO Frits van Paasschen said he expected corporate travel to continue growing during the coming months, which should give hotels more edge in negotiations. "U.S. companies today are extraordinarily strong in terms of their balance sheets," he said. "They're looking at opportunities to grow, get out and travel. With that kind of increase in demand, and supply being constrained for some time to come, it's going to be a great rate environment."
The CEOs said returning group business also is boosting occupancy, leaving room for rate growth. Nassetta said group travel to Hilton properties is showing "no signs of weakness," while van Paasschen said business for this summer is coming without the discounting seen in previous years. As a result, CEOs said they expected the group booking window to again expand.
Much still depends on economic conditions this summer. While economists at the conference said the chance of the United States sliding back into a recession is slim, they suggested it would be shaken both by the high unemployment rate and such global events as unrest in the Middle East and possible debt defaults by the governments of Greece, Portugal and Ireland. Economic growth, they concluded, is likely to continue but at a tepid pace.
Oil prices also have the potential to eat away at demand. In a new report, PKF Hospitality Research noted that hotels will see only minimum disruption if oil reaches $125 a barrel, but prices above $150 would severely curtail the industry's recovery.
Increasing airfares--pressured upward by limited airline capacity growth and rising oil prices--also might force some corporations to reevaluate their travel budgets, particularly for the internal meetings that hotel executives said had begun to return, said Adam Weissenberg, leader of Deloitte & Touche's hospitality and leisure sector. He expects corporate rates therefore to ultimately fall short of the CEOs' expectations.Those expectations, Weissenberg said, seem "relatively aggressive when you look at some of the RevPAR numbers in terms of overall growth. There will be increases overall in corporate rates for the upcoming year, but I'm not sure how high they will be."
Nevertheless, the CEOs said they expected rates to trend higher for the next several years. With financing difficulties constraining supply growth, Nassetta called the gap between low supply growth and high demand growth globally the most favorable he'd ever seen.
"As long as the economies around the world have a global GDP growth of 4-plus percent, nobody is building except in a few select places around the world and demand globally is going up much faster than anyone can add supply, you're going to get increasing RevPAR growth by rate."
Even if hotel companies tomorrow began building heavily, it would be several years before those hotels were completed, forestalling meaningful supply growth by two to four years, van Paasschen said. "If you don't like your airline prices today, you really aren't going to like your hotel rates in about three years," he said, "unless you're one of us."
The article originally was published in Business Travel News.