Increased pricing power and strong occupancies bolstered third-quarter hotel performance for Starwood Hotels & Resorts and Hilton Hotels Corp., which yesterday and today, respectively, released quarterly financial results. Both hotel companies said their pricing power would remain strong for the remainder of the year and into 2006.
Positive performance by the two companies is indicative of continued improvement in the U.S. lodging market at large. Smith Travel Research said U.S. hotels this quarter posted record per-room revenue growth with an 8.3 percent increase from the previous year. Likewise, occupancies across the U.S. this quarter rose 2.7 percent and average daily rate jumped 5.6 percent, STR said. The numbers reflect the highest growth rate in a third quarter across the U.S. lodging industry since STR began recording such data in 1987. As such, Hilton and Starwood this week join Marriott International, which announced earnings earlier this month, in posting gains in all metrics of hotel performance.
Starwood CEO Steven Heyer boasted an "industry-leading performance," as the company recorded a 13 percent rise in revenue per room at owned hotels in North America, and 11.9 percent worldwide. Average daily rate, meanwhile, increased 10 percent in North America and 8.5 percent worldwide. Across all of its brands, Hilton said occupancy increased 3.2 percentage points to 82.4 percent, as average daily rate was up 8.9 percent.
To the chagrin of buyers, hoteliers are attributing RevPAR increases largely to growth in average rate. "Approximately 70 percent of the quarterly RevPAR increase at the comparable owned hotels was attributable to the ADR gains," Hilton noted in its earnings report.
For the quarter, Hilton recorded a net income of $89 million, compared with $61 million from the same period last year. Although Starwood's net income of $39 million for the third quarter was significantly lower than last year's $107 million, the company attributed the dwindling number to one-time charges during the quarter. "Excluding special items, income from continuing operations was $131 million in the third quarter of 2005 compared to $85 million in the same period of 2004," the company said in its earnings statement.
Hilton said that growth in room nights and rates across the business transient, group and leisure segments "resulted in many of the company's owned hotels showing double-digit revenue-per-available-room gains in the quarter."
Meanwhile, Marriott International-with an 18 percent increase in revenues and 9.2 percent rise in RevPAR-this month during its own earnings call said, "rarely have we seen a more favorable pricing climate for our industry
(BTNonline, Oct. 6)."