Hotels Post Mixed 3Q Results
Hilton Hotels Corp., Marriott International and Starwood Hotels & Resorts Worldwide last month released decidedly mixed third-quarter earnings that countered recent speculation that the lodging industry had reached bottom in its two-year-long downturn and that a rebound was underway.
Net income for the quarter at Hilton, Marriott and Starwood fell 29 percent, 18 percent and 7.7 percent, respectively, over the same period last year. Revenue per available room results were more positive at Starwood, rising 4.4 percent year over year. At Hilton and Marriott, however, RevPAR declined—1.9 percent for company-owned hotels at Hilton and 0.5 percent for similar hotels in North America at Marriott.
Because these three U.S.-based companies have such extensive distribution and operate a number of brands at a range of price points, their performance is seen as indicative of the lodging industry as a whole. Given their size, the three giants also actively promote chainwide deals to corporate travel managers.
The earnings announcements coincide with buyer negotiations for 2004 rates that mostly conclude this month. Such varied reports as these add to the sense that buyers continue to hold the upper hand, assuming they are able to move marketshare and deliver on their room night projections.
At Hilton, the company benefited from an increase in leisure travel during the summer, but group and business transient demand remained weak. The company's full-service brands, which include the core Hilton brand and Embassy Suites, underperformed its midprice brands, which include Hampton Inn and Hilton Garden Inn. Hilton identified three key business markets where it has significant inventory—Boston, Chicago and San Francisco—as particularly troublesome.
Group bookings also were weak at Starwood. Yet, the company said transient business travel in North America during the quarter was up in excess of 8 percent, more than offsetting any weakness on the group side. Among its brands, W Hotels, which primarily caters to transient business travelers, performed very strongly, racking up quarterly RevPAR gains of 13.5 percent year over year.
RevPAR at Marriott's full-service brands—which include the core Marriott brand, Renaissance and Ritz-Carlton—basically was flat, though it outperformed the company's midprice brands. Like Starwood's experience with W, Ritz-Carlton had a particularly strong quarter, showing RevPAR gains of 5.6 percent.
Despite the overall lackluster results, however, J.W. Marriott Jr., Marriott chairman and CEO, still sounded bullish. "It does appear that the early stage of a recovery in transient demand is underway. Our early estimates for 2004 are for 3 percent to 4 percent RevPAR growth in North America, suggesting that 2003 should be the trough in RevPAR," he said.
Quarterly results at smaller hotel companies and those with a more targeted market were consistent with their multi-brand competitors' performance. At Fairmont Hotels & Resorts, for example, RevPAR at managed hotels was flat for the quarter, while RevPAR at owned hotels jumped 2.9 percent. Extended Stay America, which solely targets the midprice extended stay sector, saw its quarterly RevPAR drop 3.8 percent.
Simultaneous with its quarterly earnings statement, Starwood announced that chairman and CEO Barry Sternlicht was stepping down. Citing family time pressures, Sternlicht said he will assume a less hands-on role as executive chairman. A search for a successor is underway, with a special focus on executives from the entertainment and retail industries. Keith Mills, lodging and REIT analyst at UBS, said a new CEO could be a positive development in the long term, with "new leadership better positioning the company strategically."