Analysts Predict Strong 2005 For Hoteliers
The lodging-industry rebound that has occurred in 2004 is the first phase of a more substantial recovery next year that should last into at least 2006, according to a report this week issued by JP Morgan Chase. The positive outlook was consistent with this week's Hospitality Research Group announcement of findings that, in 2005, the typical U.S. hotel will achieve revenue levels comparable to those of the late 1990s, the industry high-water mark.
The JP Morgan and HRG 2005-2006 projections indicate that travel buyers will have a tougher time at the negotiating table. Many buyers have reported hotel executives took a harder line on rate negotiations for 2005 than they did one year ago, a trend likely to continue for 2006 negotiations.
"The upward trend in real gross domestic product and corporate profitability is in its early stage and always has been tightly tied to incremental lodging demand," said JP Morgan Chase analyst Harry Curtis. "Near term, the outlook for pricing increases remains strong."
In his computations, Curtis eliminated Orlando from the country's top lodging markets because of the negative impact this year's hurricanes had on demand there. Without Orlando, average daily rate in the top markets for the fourth quarter is expected to rise 10.3 percent. Pricing on new group bookings for the first quarter of 2005 is up by a similar amount.
"The key to industry pricing power is the spread between supply and demand, which through 2005 should be as wide as it's ever been," Curtis said. "We are early in a long cycle where the pricing and earnings upside are strong."
By the end of 2004, the Hospitality Research Group, which is part of PKF Consulting, projects that the top U.S. markets will achieve average occupancy of 64.8 percent, a 5.4 percent gain over 2003 levels. ADR is expected to grow 3.7 percent. "Going forward, occupancy is forecast to improve to 66.6 percent in 2005, while ADR should jump 4.7 percent," said Mark Woodworth, HRG executive managing director.