Hotel CEOs See Rougher Rate Talks Ahead

Buoyed by an improving demand outlook, hotels will take a hard line in asking for corporate rate increases in upcoming negotiations, according to a panel of hotel CEOs speaking today at the New York University International Hospitality Industry Investment Conference.

Chief executives from InterContinental Hotels Group, Marriott International, Best Western and Hyatt Hotels Corp. reported a positive corporate demand outlook for the coming years, which they said would give them leverage as negotiations for 2011 rates begin this summer. While occupancy and revenues largely have been on the rebound worldwide, rates have not yet followed, but Marriott president and COO Arne Sorenson said he expected they would "very, very soon."

"If you look at the cycles in history, the years after a recession have been spectacular," Sorenson said. "In some markets, we're already seeing positive rate growth."

Sorenson said corporate and group rates negotiated in the past year were the reason industry data have not yet shown a recovery in rate. "We booked whatever group business we could find with a pulse in the last year, and the rates of that business are not great," he said. "We've got to work our way through some of that."

IHG chief executive Andrew Cosslett said the Asia/Pacific region in particular already is seeing rate increases. Best Western CEO David Kong said increasing corporate rates at hotels across other regions would be a necessity this year.

"We have to raise the rates," Kong said. "The rates we have up to this point are not sustainable. We have to increase rates to have a viable business."

IHG's Cosslett said hotels' pricing strength could be undercut as governments begin to crack down on their travel costs, particularly in Europe.

"Whilst corporations have taken the axe to their travel programs, it has not been true of governments," Cosslett said. "The austerity measures which now every government across Europe in particular and the rest of the world are looking at are going to take vast amounts out of the marketplace. That could potentially be a problem, because we are an industry that relies on government business."