Hotels go after business travelers
By Chris Woodyard
USA Today
As the economy strengthens, the hotel industry is optimistic about a resurgence in business travel that could lead to higher room rates.
"The economy is turning around for hotels," says Robert Diener, president of Hotel Reservations Network, which operates the booking service hotels.com.
While Diener predicts that discounted hotels on his Web site could post rate increases as high as 20 percent by year's end, consulting firm PricewaterhouseCoopers predicts overall rates will rise 1 percent.
Cost cutting and strong demand by leisure travelers have let major hotel chains stay profitable this year as well as last, despite the post-Sept. 11 drop-off in business. Analysts are optimistic about the industry because corporate travelers are starting to stay more often.
"In general, the market is definitely getting better and exceeding our modest expectations," says Barry Sternlicht, CEO of Starwood Hotels & Resorts, which has the Westin, Sheraton, W and St. Regis brands. He calls it a "cautious recovery."
In contrast to the billions still being lost by the airline industry, major hotel chains reporting so far managed to stay profitable in the first quarter:
• Hilton said Tuesday that first-quarter net income was $34 million, down from $55 million a year earlier. But the company expects to see a 2 percent to 3 percent increase this year in revenue per available room, a vital financial benchmark, partly because a strengthening economy should see more business travelers.
• Marriott International, one of the nation's largest lodging chains, reported first-quarter net income of $82 million, down from $121 million a year ago, reflecting a strategy of aggressively filling rooms even at the lowest of rates.
• Fairmont Hotels & Resorts, a Toronto-based chain whose properties include the Fairmont Hotel in San Francisco, revised upward its estimate for the rest of the year and recorded first-quarter income from continuing operations of $13.6 million. That reversed a loss of $4.5 million in the same quarter last year. "Positive trends we have seen thus far will continue for the balance of the year and into 2003," CEO William Fatt says.
Analysts are revising estimates, too. PricewaterhouseCoopers has raised its predictions for lodging demand, forecasting an increase of 3.8 percent this year compared with last year.
Hotels say they are starting to see more business travelers, crucial customers for most hotels' weekday business.
About 65 percent of 200 corporate travel managers surveyed last month said travel demand has increased 10 percent in their companies since January, the National Business Travel Association reports.
Hotels are trying to lure them back with lucrative frequent-stay deals. Example: Hyatt is offering a free night for every two stays to travelers who pay with an American Express card.
"The degree to which these promotions are going is a lot more intense," says Marvin Erdly, a partner in PricewaterhouseCooper's hospitality practice.
The promotions come as the industry distances itself from a weak winter.
Only two of the top 25 U.S. hotel markets, Philadelphia and Virginia Beach, showed an occupancy rate jump from a year ago. Seattle was off 13 percent, Chicago was down 14 percent, and San Francisco fell 21 percent.
But hotels managed to weather the downturn by cost cutting. Restaurants have been closed or had their hours cut.
