Marriott International last week reported modest average rate increases and has been telling corporate accounts to expect some healthy price hikes for 2011. The hotel company anticipates that "special corporate" rates--those negotiated with clients--overall will increase "meaningfully from where they were negotiated a year ago," said president and COO Arne Sorenson. "With strengthening demand, our customers know that today's prices are not sustainable. We will begin special corporate pricing negotiations later this summer and are already preparing customers for rate increases, including significant increases in many cases."
Business travel demand trends remain "encouraging," Sorenson said last week during a conference call with analysts. For the Marriott Hotels & Resorts brand, second-quarter corporate and premium room nights rose 16 percent year over year, while "special corporate" room nights jumped 21 percent. Rebounding corporate travel trends, according to Sorenson, are being driven by strong business in the technology, consulting and insurance industries. The financial sector, he added, also "is back much more dramatically." Overall, systemwide occupancy increased 4.5 percentage points to 70.7 percent.
Given the recovery in business travel and corporate group volumes, Marriott was "able to increase room rates much faster than we had anticipated," Sorenson said. In the company's financial period "roughly equivalent to May," the average room rate at domestic company-operated properties rose 1 percent, "the first increase in nearly two years." In the period roughly equivalent to June, those rates increased 3 percent.
And while special corporate room rates declined 3 percent in the quarter (because most were negotiated last year in a very different economic climate), overall corporate and premium rates for the Marriott brand in June on average increase by "about 10 percent," Sorenson said. "With higher occupancy our managers found real pricing opportunities."
According to a Marriott filing with the U.S. Securities & Exchange Commission, "Demand for higher-rated rooms improved in the first half of 2010, which allowed us to reduce discounting and special offers for transient business."
Moving forward, "within the special corporate universe, we've got relatively better business and relatively weaker business ,and some of that weaker business will find that it gets pushed out," Sorenson said, adding that Marriott may "end up with a little bit of a mix shift, even within special corporate."
Group Rate Reversal Also Expected In 2011
As with special corporate rates, Sorenson predicted that 2011 group pricing would rise. He said group business priced today for next year is "up on average in the high single digit [percentages]" versus last year, but for now, "pricing for group business remains challenging." For the Marriott brand, total group room nights increased 8 percent (including 10 percent more corporate group business) but group room rates fell another 2 percent year over year.
"Much of [group] business was booked last minute in the second quarter," Sorenson explained. "Roughly 25 percent of our group room nights were booked within the three months prior to arrival."
According to Marriott's SEC filing, "During the 2010 first quarter, group meeting cancellations returned to average levels, and expected revenue from future group meetings continued to improve throughout 2010. We also saw greater numbers of corporate group customers in the second quarter of 2010."
Marriott reported second-quarter net income of $119 million, a 42 percent increase from $37 million in 2009.