Marriott: Occupancy, Revenues Continue To Strengthen

The improvement in occupancy rates and room revenues first seen during the summer at lodging industry giant Marriott International continued into September, chairman and CEO J.W. Marriott Jr. reported on Sept. 26. The strong summer performance was attributed mostly to leisure travel. September data, however, typically reflect business travel bookings.

Marriott's upbeat assessment was confirmed by comments last week by industry analysts, as well as Steven Rudnitsky, chairman and CEO of the Cendant Hotel Group. While Marriott brands represent a wide range of price points, Cendant brands, which include Ramada, Days Inn and Wingate Inns International, are solely at the midprice and economy tiers.

A rebounding lodging industry may not bode well for buyers' hotel negotiations because hotels could be less likely to offer rate concessions. However, considering how tentative the recovery is, buyers still should be in a good position at the bargaining table this fall.

"The past is behind us, and the future looks good," Marriott said, referring to the sustained downturn that has dogged the lodging industry.

At the NYU Hospitality Investment Conference in June, Marriott said he was somewhat hopeful that a sustainable industry recovery was in the offing. "I'm still cautiously optimistic, but not as cautious as I was then," he said last month. Marriott said the company's upscale and deluxe brands particularly were performing strongly, which is a change from 2002 and early 2003, when midprice brands led the market.

In terms of negotiated rates for 2004, "Buyers obviously want to keep you flat," Marriott said, adding that it still was too early in the negotiation process to know what the outcome would be.

Marriott spoke at the dedication of the 1,600-room Grande Lakes project in Orlando, which includes a J.W. Marriott and a Ritz-Carlton and is the largest non-gaming U.S. lodging facility to open this year.

"The market clearly is moving in the right direction," Rudnitsky confirmed. "We had a solid summer and expect September results to come in positively. We're also starting to see some overall positive trends in revenue per available room."

As with Marriott, Rudnitsky said Cendant was under pressure to keep a lid on negotiated rates. "Our customers have asked us to hold pricing to 2003 levels," he said, acknowledging it's still probably a buyer's market. "The market's very competitive, given the supply and demand curves that exist out there, and there's still a fair amount of price compression."

According to Smith Travel Research, RevPAR in August for U.S. hotels increased 1.9 percent, compared with August 2002, while occupancy rose 1.2 percent.

Looking to September and October, JPMorgan analyst Harry Curtis is relatively bullish on the market's prospects. "Lodging demand appears to have turned a corner," he said. "We see sequential improvement for the period, and it's being driven by increases in individual business travel. For October, JPMorgan's preliminary projections show positive year-over-year RevPAR comparisons of 2 percent.

The impact on the industry of discount rates being widely available on the Internet grew through the summer and into September. UBS analyst Keith Mills noted that more chains, consequently, were enforcing their "best rate guarantees" on their branded sites. "The hotels also are moving more inventory to sites that offer greater pricing flexibility," Mills said, "so that they receive the upside if demand picks up faster than expected."