Biz Travel Leads Lodging Recovery

Business travel is leading a recovery in the U.S. lodging market, contributing to a 3.9 percent growth in average daily rate in 2004 and a projected growth of 4.3 percent in 2005 and 4.6 percent growth in 2006, Bjorn Hanson, global hospitality industry leader for PricewaterhouseCoopers, said today.

Without the increase in business demand, total demand would have expanded only 2.3 percent in 2004 and the average daily rate would have remained flat relative to 2003, Hanson said. Business travel has kept demand at upscale, upper-upscale and luxury hotels above long-term forecasts, but rates at these properties decreased most dramatically since 2000.

"Luxury has been buying demand from other segments," he said. Hanson predicted rates to rise in 2006 by an average of 5.8 percent at luxury hotels and 5.7 percent at upper upscale hotels, compared with the overall industry average of 4.3 percent.

Hanson said he expected the rise in rates to drive U.S. lodging industry profits of $20.8 billion next year, the highest since 2000. Despite the strong forecast for growth, the hotel industry is not likely to recover completely from the past three years of terror alerts and the economic downturn until the end of 2006, Hanson said. "Even though we're doing better, we haven't recovered to that long-term trend line," Hanson said.

Revenue per available room was up 7.5 percent in 2004 because of "pent-up demand," Hanson said, and RevPAR is expected to hit 7.3 percent next year. Forecasts of RevPAR growth rates in 2004 and 2005 are the highest in 20 years, said Hanson, and combined they offset all that was lost on a nominal basis, without taking into account inflation, over the past four years.