Hotel Rates Projected To Rise Through 2006

According to several recent reports, analysts expect the current rebound in lodging industry demand and profitability to last until at least 2007, meaning occupancies and average daily rates will remain high and travel managers can expect hotels to continue to press for aggressive rate increases.

A research report issued today by UBS analyst William Truelove projected that occupancy, ADR and revenue per available room will climb through next year. CIBC World Markets analyst William Schmitt agreed, noting that supply growth is expected to remain at low levels through 2006. Meanwhile, Bjorn Hanson, global head of the hospitality practice at PricewaterhouseCoopers, in a 2004 year-end presentation said hotel profitability in 2005 will rise 25 percent from 2004 levels and rise an additional 21.1 percent in 2006.

Colleen Guhin, strategic sourcing manager for travel and telecommunications for ON Semiconductor in Phoenix, who just came through difficult negotiations for 2005 rates, put the prognosis for hotels in perspective for buyers. "Even in a buyer's market, travel managers need to keep an eye on compliance to ensure the volume projections they're making to hotels are accurate. Of course, improving profitability makes hotels less likely to want to negotiate, but it only means compliance and a tightly run program become more critical."