Gains in the Hotel Industry

July 28 2010 | Latest News
Business travelers are the leading contributor to the rebound.

July 27, 2010


The hotel industry in the United States appears to be rebounding this summer, mainly because of strengthening business travel.

So far the biggest beneficiary is New York, though other cities on the East Coast are starting to report gains as well. And the upscale, full-service hotels that have long been favored by business travelers have benefited more from the upturn in demand than the midlevel brands, industry analysts say.

The rebound, said Mark V. Lomanno, president of Smith Travel Research of Hendersonville, Tenn., is “top-down.” The more expensive hotels, he said, “are recovering the fastest, and will continue to do so this summer, as business travelers come back.”

With hotel occupancies rising, room rates have started stabilizing, according to Smith Travel Research. The rates remain substantially below their peak, reached in September 2008. And occupancy rates, in general, are also far below their peak: the average is now 55.8 percent, down from a high of 63.1 percent in November 2007.

Still, in New York now and probably in other cities in the fall, business travelers will no longer be able to count on getting cheap rates at preferred hotels at the last minute and will have to book further in advance to stay where they want.

Bjorn Hanson, dean of the Preston Robert Tisch Center for Hospitality, Tourism and Sports Management at New York University, estimated that hotel occupancies in the United States would rise to 63.5 percent from June through August, compared with 60 percent in the same period last year.

He described the increase as “dramatic,” adding: “Typically, the movement would be 1 percent. There is not normally a robust business travel recovery during the summer.”

Mr. Hanson estimated that the number of hotel rooms occupied by both business travelers and groups would be 6 to 7 percent higher this summer than last, while the rooms occupied by leisure travelers would rise slightly less, 5 to 6 percent. He attributed the increase in business travel to a stronger economy, and the improvement in leisure travel to greater confidence in the economy and “the expectation that rates will start to increase, and that this is a great time to take advantage of them.”

Mr. Lomanno also said he expected more improvement in business travel than in leisure travel. But, he added, leisure travel “did not fall as far as business travel.”

He estimated that average room rates paid by business travelers would be only 1 or 2 percent higher this summer than last, while rates paid by leisure travelers would rise 3 to 4 percent.

But, he said, some East Coast cities are outpacing the overall industry recovery. He pointed to Boston, Washington and Philadelphia, where he expects rates paid by individual business and leisure travelers to increase 1 to 3 percent this summer over last summer.

Those increases, though, will be even greater in New York, he said. He predicted that room rates there paid by individual travelers who book at the last minute would be 10 to 15 percent higher this summer than they were in 2009.

“The East Coast is recovering more than the West Coast,” Mr. Lomanno said. “I don’t know why. New York is driven more by the financial community, and it’s recovered rather nicely.”

He said travelers would “need to book 7 to 10 days out.”

He also said that although New York hotel rates were up significantly over last year, they were still 10 to 15 percent lower than their peak in mid-2008.

Mr. Lomanno said room rate increases comparable to those in New York were likely in Boston, Washington and Miami in the fall, and in Los Angeles and San Francisco later in the year.

Henry H. Harteveldt, travel analyst for Forrester Research, also said he anticipated higher room rates. “The sweetheart deals of 2009 are gone,” he said. “Hotels now are more aggressive in revenue management, and are closing out lower price points as quickly as they can, especially in markets popular with business and leisure travelers in the summer, like New York and Boston.”

But the improvements in demand are not across the board.

Carl T. Berquist, chief financial officer of Marriott International, said that revenue per available room at company-operated hotels in North America under the Ritz-Carlton brand, one of 18 Marriott brands, was up 15.9 percent in the second quarter. But he said limited-service Marriott brands, like Residence Inn and Courtyard, “are not coming back as fast,” in part because they generally do not accommodate groups.

In a report issued earlier in July, Steven Kent, lodging analyst for Goldman Sachs, wrote that “group and conference/convention activity is accelerating.” He added: “Wherever we look, we see better group business. Group business is important, because even though it accounts for 35 percent to 45 percent of a full-service hotel room demand, it is set far in advance. When rooms are set aside for a conference, hotel managers can afford to wait for the high-paying, last-minute transient traveler.”

One widespread phenomenon this summer is definitely benefiting business travelers: loyalty program offers that give participants one free night after a certain number of stays. Companies that are extending these include Carlson, Omni, Starwood and Best Western.

The timing and prevalence of such offers are new, said Tim Winship, publisher of “Hotels have so many available rooms, it’s been a real bonanza for anyone who stays often in them.”