Starwood Hotels & Resorts Worldwide expects strong business travel volume and moderately improving group demand to drive rate increases, although certain U.S. markets where the hotel company has its largest presence are growing at a slower pace.
CEO Frits van Paasschen during a Thursday earnings call with investors said the company's second-quarter North American occupancy reached a record 78 percent, nearly two percentage points higher than the same period last year. The average daily rate in the region increased 3.3 percent year over year to $175.73.
Amid high occupancies, Starwood hotels have been "mixing out lower-rated business," van Paasschen said. Group business also has been recovering, with group revenue at managed and owned hotels in North America up in mid-single-digit percentage levels during the quarter, and bookings in the year and for the year are up by double-digit percentage levels, he said. A high volume of association group business cancellations has tempered group growth, he added.
Group sales also have benefited from Starwood "investing in some sales tools to enable our associates from more locations and with more flexibility to not only access what inventory is available at what prices but targeting customers based on what we know about their past histories and inquiries," van Paasschen said. "This has enabled our associates to be more productive."
Growth in revenue per available room was weaker in some markets where Starwood has a large footprint, van Paasschen said. It was about flat year over year in Chicago and Hawaii and up slightly in Washington, D.C.; in New York, which has seen a large amount of supply growth, RevPAR increased 5 percent.
Overall, however, a combination of factors, including high corporate profitability and below-average supply growth, should allow Starwood to "enjoy full hotels and rising rates for some time" in North America, van Paasschen said.
Global Performance
Worldwide, Starwood ADR during the second quarter increased 2.2 percent year over year to $178.19, and occupancy increased by 2 percentage points to 71.9 percent.
In Europe, Starwood expects a "modest recovery will continue," according to van Paasschen. Systemwide ADR in Europe for the quarter increased 5.2 percent year over year to $238.71, though occupancy stayed about flat at just below 70 percent. Starwood hotels in Italy and Spain had the strongest performance, while hotels in France and the United Kingdom had slower growth, van Paasschen said. He added that the fighting between Russia and Ukraine was the "biggest dark cloud" in Europe, with the potential to derail hotel performance in the region in the coming quarters.
Starwood's systemwide ADR in the Asia/Pacific region declined 2.9 percent year over year to $153.01, while occupancy increased by 4 percent points to 63.4 percent. China, where van Paasschen said "demand is not just holding up but growing," accounted for the bulk of the occupancy growth, with occupancy in Greater China up 7.2 percentage points to 62.1 percent for the quarter. In the rest of Asia/Pacific, occupancy was about flat.
ADR in Africa and the Middle East remained about flat during the quarter at $185.61, while occupancy dropped by 1.1 percentage points to 62.9 percent. Van Paasschen said performance varied wildly by markets, with RevPAR up significantly in Qatar and Abu Dhabi but down in Egypt and Nigeria, both of which were affected by political instability.
Starwood's net income for the quarter was $153 million, up from $137 million in the second quarter of 2013.