Marriott International, Starwood Hotels & Resorts Worldwide and Hilton Hotels Corp. last month all announced second-quarter earnings that show significant jumps in revenue per available room year over year of 13 percent, 17.1 percent and 8.3 percent, respectively. Average daily rate increased in the quarter as well—3.7 percent at Marriott, 7.5 percent at Starwood and 3.6 percent at Hilton. Marriott and Hilton also reported occupancy results, which were up nearly 6 percent and 3.3 percent, respectively.
Given the dominance in the marketplace of Hilton, Marriott and Starwood, their quarterly results are indicative of the industry's performance overall. The positive results suggest that the rebound hotel companies first reported at the end of last year is sustainable.
As buyers get ready to begin the negotiation process that results in 2005 rates, analysts expect hotels to seek rate increases as high as 3.5 percent to 4 percent, considering that many chains came away with minimal rate increases, if any, in recent negotiations
(BTN, June 21)."Even when considering the benefit of favorable year-over-year comparisons, second-quarter results demonstrate that business is improving in a big way," said Stephen Bollenbach, Hilton co-chairman and CEO.
Barry Sternlicht, Starwood chairman and CEO, also is bullish that demand will remain strong through 2004, 2005 and into 2006.
Alluding to potential increases in negotiated rates, Bollenbach foresees a return to "true pricing power," citing "the strength in business transient travel that we began seeing last year and a more recent upturn in group travel." He added that roughly 40 percent of Hilton's second-quarter RevPAR growth came from rate increases, "so we're seeing a more rate-driven environment."
J.W. Marriott Jr., Marriott chairman and CEO, focused on travel from international destinations to the United States, which was up 34 percent year over year. "After three difficult years, strong demand returned to the markets most impacted by the downturn," he said. International bookings lagged in the aftermath of the 2001 terrorist attacks.
Domestically, Bollenbach and Sternlicht both cited New York, Boston, Washington, D.C., and New Orleans as having particularly strong demand during the quarter. Phoenix and San Diego were other strong performers for Hilton, as were Los Angeles and Atlanta for Starwood. Bollenbach noted that occupancy levels on peak nights reached 90 percent at Hilton properties in New York and Boston.
Chicago remained a trouble spot, due to a dearth of citywide meetings this year. This particularly was relevant for Hilton, which has a significant amount of inventory in the city. Bollenbach said that Hilton's quarterly RevPAR growth would have been 2.3 percent higher had Chicago's performance been stronger.
"Solid midweek RevPAR growth suggests that corporate travel volumes are improving," said Michael Rietbrock, who covers the industry for Citigroup Smith Barney. "Midweek ADR gains imply that a positive mix shift is underway, meaning that hotels are seeing more higher-rated corporate bookings."
Hilton's exposure in Chicago notwithstanding, hotel companies with a strong presence in downtown business districts are best situated to benefit from the rebound, said Harry Curtis, Rietbrock's counterpart at JPMorgan Chase. He cited as an example Starwood and its "leverage in gateway cities that are experiencing accelerating pricing power."