Initial Hotel Reports Show Lower Revenues

Marriott International and Hilton Hotels Corp. last week were the first major multi-brand hotel companies to report first- quarter 2003 earnings. In anticipation of the overall earnings reports, the lodging industry was braced for a round of bad news in light of security concerns related to the Iraqi war, fears over SARS and the effects of the continuing weak economy. However, while Marriott and Hilton reported lower revenues than the same period a year ago, the results were far from the disastrous showing many had anticipated.

Quarterly results released last week by the tracking firm of Smith Travel Research confirmed this overall sense. According to STR, revenue per available room for U.S. hotels slipped 1.6 percent. STR president Mark Lomanno also cited a year-over-year slowing in the supply growth rate as a positive sign. Historically, however, RevPAR is not near the level it was. For the first quarter of 2002 STR reported that RevPAR was off 9.8 percent, compared with the same period in 2001.

Such lodging industry analysts as Paul Keung of CIBC World Markets took the results in stride. "Demand and pricing have been sluggish since the start of the year, even before the war with Iraq and the outbreak of severe acute respiratory syndrome," he said.

Travel buyers follow hotel companies' financial performance as a likely indicator of how aggressive hotels will be in any upcoming rate negotiations. The greater the siege mentality for hotels, the more apt they will be to offer attractive rates as a way of locking in key corporate accounts. This generally has been the case for the past 12 months to 18 months.

At Marriott, RevPAR was down 1.5 percent for the quarter over the prior year for company-owned properties in North America. At Hilton, the RevPAR drop for comparable properties was 2.2 percent. Hilton noted a special weakness in its group business. At both Marriott and Hilton, midprice brands performed slightly better than full-service brands. Surprisingly, Marriott's international portfolio outperformed the North America properties, with quarterly RevPAR actually increasing 6.8 percent. Marriott chairman and CEO J.W. Marriott Jr., however, noted that the impact of SARS only began to be felt in late March. Hilton largely was spared the effect of SARS since its portfolio is primarily U.S.-based.

Keung expected RevPAR for the year industrywide to be down by roughly 1 percent.

Counter to the larger trend, Extended Stay America last week released quarterly earnings that showed RevPAR declines of 4.9 percent. Extended stay hotels, which draw most of their corporate business from travelers being relocated or on long-term assignment, particularly have been vulnerable to the economic downturn.