More Hotel Rooms May Temper Rate Rises
Jane L. Levere, New York Times, 5/8/2007
With many new hotel rooms planned in the next couple of years, the industry is clearly optimistic that it will have little problem filling them.
But some industry analysts are not as sure. And the price travelers pay for those rooms will depend on who is right.
One, Steven E. Kent of Goldman Sachs, who downgraded his rating for hotel stocks last fall from attractive to neutral, said he was particularly concerned that the supply of hotel rooms was growing faster than demand.
"This is the first time since 2002 that supply growth will be greater than demand growth, and this usually leads to pricing pressure," Mr. Kent said.
He said he did not expect the cost of hotel rooms to go down anytime soon but he said, the rise in rates would slow.
"The bottom line for business travelers," he said, "is that they will continue to get sticker shock when they walk into a hotel. But they should also know it's going to start to moderate."
PriceWaterhouseCoopers estimates that the average number of rooms sold daily by hotels in the United States will increase by 1.4 percent this year and 1.9 percent next year, compared with increases of 4 percent, 2.8 percent and 0.8 percent in the years 2004 through 2006, as calculated by Smith Travel Research. It also forecasts that the supply of hotel rooms will jump 1.6 percent this year and 2.3 percent in 2008 and 2009. The last time supply increased at least this much was in 2002, just as travel plummeted after the Sept. 11 attacks.
PriceWaterhouseCoopers further estimates that the increase in revenue per available room will start to decline this year. It projects an increase of 5.6 percent in 2007 and 5.3 percent next year. That compares with increases of 8.5 percent in 2005 and 7.7 percent in 2006, according to Smith Travel Research,.
Mr. Kent of Goldman Sachs had a similar prediction. "Pricing growth is going to decelerate," he said. "We don't expect it to go negative."
Bjorn Hanson, a principal at PriceWaterhouseCoopers, agreed. "Slightly more availability of hotel rooms and lower rate increases will be the trend for the next few years," he said.
Although Marriott has reduced its 2007 estimate for growth in revenue per available room in the United States to between 6 percent to 8 percent, it minimizes this decline, and attributes it to weakness in group business in January 2007. It says bookings for such business are strong in the fourth quarter of this year.
"Business travel seems to be quite firm, and we continue to see this for the rest of the year into next year," said Laura E. Paugh, senior vice president for investor relations at Marriott International.
She also said that Marriott estimated that industry supply in the United States would grow roughly 2 percent this year, largely in suburban and other markets outside big cities.
Robert M. LaForgia, executive vice president and chief financial officer of Hilton Hotels, was even more bullish. His company forecasts 9 percent to 10 percent growth this year in revenue per available room at hotels it owns. At urban hotels like the Waldorf-Astoria in New York and the Hilton Chicago, he said, revenue per available room may jump even higher.
Joseph R. Greff, lodging analyst for Bear Stearns, said there were "still relatively healthy supply and demand relationships" in urban markets in the United States frequented by business travelers, despite what he described as a "slowdown" in certain suburban domestic markets.