With revenue up 18 percent in the first five months of 2004, Starwood Hotels & Resorts Worldwide is enjoying a “record rebound year,” said Bob Cotter, president and COO, at a Motivation Show client luncheon held in late September in Chicago. He emphasized that Starwood intends to continue to be a strong partner to planners, even as the economy shifts to a supply-demand model that hasn't been seen in the past four years.
It won't be an easy partnership for planners. Not only will the expected seller's market be exacerbated by limited supply — new hotel construction ground to a halt during the recession — but Internet transient pricing has changed the playing field, said Cotter. “We have to talk together about why a transient price can be lower than a group rate, and how we can set appropriate rate expectations.”
Appropriate rate expectations mean that the deep hotel discounts that have been offered to planners in the past few years are becoming history — and in the near future, planners who negotiate a rock-bottom group rate should be prepared to pay for meeting space. “We're coming into a radically different environment,” said Cotter, “and there's a lot of misinformation. It seems to me that the most important thing to be talking about is the way we talk to each other.”
Starwood's rebound is not unique. The seller's market is returning across the hotel industry, according to PricewaterhouseCoopers' U.S. Lodging Forecast. “The balance of power has shifted, especially during higher occupancy periods,” says Bjorn Hanson, Phd, global hospitality industry leader at PWC, New York, and not just for room rates, but also for food and beverage, meeting room charges, and other charges. Hanson adds that “2005 will seem in many ways to be more of a challenge [for meeting planners] in negotiations than 2000.”
RevPAR (revenue per available room) is expected to hit a 20-year high in 2004 with an increase of 6.3 percent, the largest one-year hike since 1984. It's a sign of recovery for an industry that has experienced negative or flat RevPAR numbers the past three years. The trend will continue: PWC projects a RevPAR jump of 5 percent in 2005 and 4.5 percent in 2006.
The average daily rate rose 3.7 percent in 2004 to $83.08, up sharply from 2003 when it was essentially flat (up 0.2 percent), and 2001 and 2002, when it was negative. Looking ahead, similar ADR increases are anticipated in 2005 (3.5 percent) and 2006 (3.4 percent).
Five key factors contributed to the spike in ADR and RevPAR figures: upward revisions to inflation forecasts; acceleration of business travel and the consequent increase in higher-rate lodging demand; consolidation of hotel ownership, resulting in properties' following corporate pricing structures; dramatic increase in control by hotel companies over rate integrity and inventory, leading to less discounting in third-party distribution channels; and the Florida hurricanes aftermath, which generated demand in an otherwise slow period from people involved in damage assessment, insurance, and reconstruction. A continuing demand for business travel will continue to drive these figures, adds Hanson.
The forecast also reports some positive and promising occupancy statistics. Occupancy rates climbed to an estimated 60.6 percent in 2004, up from 59.2 percent last year. Over the next two years, occupancy will rise to 61.5 percent in 2005 and 62.1 percent in 2006. The increase is attributed to a combination of favorable growth and moderate (1.3 percent) expansion in hotel room supply.
Luxury properties were the biggest benefactors of the recovery. RevPAR numbers climbed 8.7 percent for luxury properties in 2004 and the rate is expected to jump 5.7 percent and 6.2 percent in 2005 and 2006 respectively. In addition, occupancy rose 2.8 percent at luxury hotels in 2004. Economy properties had the lowest ADR and occupancy increases this year.
Up 3.7 percent in 2004
60.6 percent in 2004, up from 59.2% in 2003
Up 6.3 percent in 2004, largest one-year hike since 1984