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 Travel & Outdoors | March 2005 
Hotels Busy for the Next Few Years
 Reuters
| Cheaper air fares are offsetting higher hotel room rates.
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US hotel companies will be booking, cooking and smoking-hot for the next few years, as a stronger economy and an uptick in business customers drive more travelers into hotel rooms, pushing room rates higher.
After being paralyzed by a three-year downturn in travel following the attacks of Sept. 11, 2001, the war in Iraq and the SARS epidemic, U.S. hotels began raising room rates in mid-2004.
"Get ready to pay more for a hotel room in 2005," Bear Stearns analyst Joe Greff said in a recent note, adding that room rates will get a boost from expanding corporate travel budgets, large group conference bookings and slow growth in new supply.
The hotel recovery is still in its early stages, Deutsche Bank analyst Marc Falcone told reporters at the Reuters Hotels and Casinos Summit on Tuesday, adding there was still plenty of room for rates to increase and stocks to climb.
"We've just got one year of lodging recovery now, from 2004," he told the summit in Los Angeles. "We have a good five to six years of strong fundamental recovery across the space. The stocks may reflect a little bit of a shorter time cycle than that."
Revenue per available room, which reflects changes in room rates and occupancy and is a key measure of health in the lodging industry, rose 7.5 percent in 2004 and is expected to rise 7.3 percent in 2005, and 6.3 percent in 2006, according to a PricewaterhouseCoopers study.
Higher room rates should drive 61 percent of the revenue per room growth in 2005, and 74 percent in 2006, analysts have said, indicating the industry's recovering pricing power.
The three biggest U.S. hotel chains -- Marriott International, Hilton Hotels and Starwood Hotels & Resorts Worldwide -- expect to raise rates further this year.
But even though customers will be paying more for hotel rooms, the average budget for a trip will stay about the same, as air fares are significantly lower than before the travel downturn and are not about to rise anytime soon, Falcone said.
The U.S. hotel industry made $16.6 billion in profits in 2004, a 29.2 percent increase over 2003, and analysts at PricewaterhouseCoopers expect profits to rise 25 percent to $20.8 billion in 2005.
Largely helping the hotel industry's pricing is low supply, a trend that will continue, according to analysts. "It will be a minimum of five to 10 years before supply meets demand," Falcone said, attributing the delay to a tight lending environment for new hotel development and reduced supply due to hotels turning into condominiums.
Any new properties in the limited service and midscale categories are at least two years off, he said.
Supply of new rooms is expected to grow 1.4 percent in 2005 and 1.6 percent in 2006. |
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