12 May 2010 - Global hotel companies reported higher than expected first-quarter worldwide occupancies, partly due to increasing corporate demand, especially in the luxury segment, and strength in Asia-Pacific. While rates around the world generally still were down from year-ago levels, hoteliers expect rates to increase this year as demand continues to rebound.
"Internationally, our transient business, which is coming back faster across the board, is the prime driver of our demand," said Hyatt Hotels president and CEO Mark Hoplamazian. Hyatt's average March-quarter occupancy outside the United States jumped eight percentage points year over year, and average daily rate grew 3.6 percent. Starwood Hotels & Resorts reported relatively flat non-U.S. average daily rates but a nearly six percentage point increase in occupancy. At Marriott International, non-U.S. ADR dropped 6.8 percent but occupancy climbed six percentage points.
"Outside North America, results are also good," said Marriott president and COO Arne Sorenson. "Improving business transient demand year to date through March in London rose 16 percent, and Paris was up 6 percent with stronger economic growth."
Similarly, InterContinental Hotels Group tracked double-digit growth in revenue per available room in Hong Kong, London and Paris "as business travel resumed in those key cities," according to CEO Andrew Cosslett.
IHG said the hotels it owns in Asia-Pacific had "particularly strong" performance, with corporate bookings rising 10 percent in the quarter and RevPar increasing 11 percent. Starwood company-operated hotels reported 10 percentage-point occupancy growth across the region and improving rate trends, from a 10 percent decline in January to a 2 percent increase in April. Marriott in March experienced an "18 percent" jump in Asia-Pacific occupancy, "dramatically exceeding our expectations," Sorenson said.
China specifically provided hotel companies with good numbers. Marriott's Sorenson, for example, noted "better than expected domestic corporate demand" that helped push higher RevPar.
Luxury Demand Drives First-Quarter Improvements
In the luxury segment, Host Hotels & Resorts CEO W. Edward Walter said special corporate business demand increased 50 percent during the first quarter and corporate group business increased 18 percent year over year, suggesting "that companies are feeling somewhat less concerned about the potential political ramifications of booking business at higher-end properties."
"Business travel is returning, although, at this stage, mainly to the luxury end of the market, which was most affected by the recession," said IHG's Cosslett.
"Our good-case scenario envisioned luxury leading the charge and this is exactly what happened," noted Starwood CEO Frits van Paasschen. Although Starwood's worldwide ADR at its luxury brands was negative, occupancy was up almost 20 percent in the March quarter.
At Marriott, premium room nights booked during the quarter rose 17 percent and 28 percent in March, largely due to the company "welcoming back corporate travelers," who booked more club-level rooms and suites and more meetings at the Ritz Carlton, according to Sorenson.
Positive Occupancy Trends Could Foretell 2011 Corporate Rates
During the March quarter, average rates paid by American Express Business Travel clients remained down in many markets, including Caracas (down 22 percent), Buenos Aires (15 percent), Dublin (14 percent), Beijing (12 percent), Florence (11 percent), Hong Kong (6 percent), Copenhagen (4 percent) and Frankfurt (4 percent).
Should occupancies continue to increase throughout 2010, however, hotel companies expect that higher rates would follow. Average daily rate trends improved each month during the March quarter "and are nearing positive territory in many markets," according to Starwood's van Paasschen.
"We are getting near the break-even point, and that's why we expect that we will cross over that rate line reasonably soon," said Marriott's Sorenson.
Improving occupancies are the first signs that future corporate rate negotiations could get tougher, according to Carlson Wagonlit Hotel Solutions Group project manager Monica Eiden. Although 2010 corporate rates for the most part won't change, CWT for 2011 expects hotels to be "very aggressive in trying to increase their rates," she said. "We are really anxious to find out what type of creative ways they are going to come back at us to make up some of that revenue they are losing."
"We are expecting rates to start trending above negotiated rates, probably midyear 2010," said Advito vice president Bob Brindley. "If clients are finding that they cannot get space at their preferred hotels, then there may be a need to add additional hotels to the program to get a room at a decent price. There is still a certain amount of uncertainty because the recovery is still in the early phases."
New Group Booking Rates Expected To Rise
On the group side, Sorenson said Marriott "will see better pricing as the year goes along for new group business." Marriott’s group room nights increased 1 percent during the quarter but was up 10 percent in March. While corporate group business remained soft, "association meeting attendance took off," Sorenson noted. Association room nights increased 15 percent during the quarter and 50 percent in March.
For new group bookings, Marriott "will be increasingly experimenting in moving those rates up from what we would have quoted a year ago," Sorenson added.
Hyatt and Starwood also reported stronger group business bookings in the March quarter and for the rest of 2010, though they--and Marriott--still are generating lower group revenue due to rate declines. "Group business booked for the rest of 2010 was up substantially compared to almost no activity last year," said Starwood CFO Vasant Prabhu. "Leads are up 14 percent, group pace for the balance of the year is rapidly approaching flat to 2009, and this business should be less susceptible to cancellations than 2009 was."
American Express Business Travel Global Advisory Services director of eXpert Insights and Research Christa Manning said there still would be pressure on group rates. "Hotels have been trying to raise the first quote on meetings but the competition is still so fierce to lock in some of these events," she said. "The hotel industry as a whole is bluffing."
