If you thought the silver lining to economic uncertainty was a potential drop in hotel rates, you were out of luck.
Hotels were a leading source of inflation in the US well into last summer as people traveled in many parts of the world following the lifting of pandemic restrictions. However, efforts to contain inflation are leading economists to debate whether the world is headed for a recession and whether it will be a hard landing or a soft one.
Don’t expect this uncertainty to usher in an era of cheap room rates at Marriott. If anything, the travel industry is supposed to be the shining star of the global economy.
“We’re pretty optimistic,” Marriott CEO Anthony Capuano told TPG during a breakfast with reporters Tuesday at the Americas Lodging Investment Summit in Los Angeles. “We don’t think we’ve tapped all of the pent-up demand for travel.”
While China’s reopening is prompting many economists to shift their outlook to more optimistic territory, Marriott also sees strength in the return of business travel. The hotel brand is raising rates on contracts with larger companies after keeping them at pre-pandemic levels for the first two years of the pandemic. Capuano also pointed to the faster-than-expected return of group business travel as another source of demand that can push up hotel prices.
“We’ve been thrilled with the pace at which group demand has recovered,” he added.
Capuano didn’t provide much on interest rates given the quiet period ahead of the company’s fourth-quarter earnings release scheduled for next month. He pointed out that based on the data, demand shows no signs that owners may lose some of their power over pricing.
There is one caveat: Booking windows, or how far people are booking stays, remain shorter than they were before the pandemic. Marriott’s current average booking window is about three weeks, which means pricing dates could change quickly, Capuano noted.
“Of course, when we look at the data, we’re very, very closely watching all the economic trends, the whole headwind discussion [and] the whole recessionary environment debate,” he said. “But we don’t see it in the data yet.”
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No summer bargains – but no hollowing either
Before your wallet starts crying, there’s some good news.
Hotel rates, while potentially higher than last year, are unlikely to rise as much as they did immediately after pandemic restrictions were lifted. An STR presentation during the ALIS conference showed that US hotel prices have increased by more than 19% over the past year.
That growth rate is expected to slow to just over 2% this year.
“Even if the expected recession is rather superficial, the performance growth in 2023 will be quite remarkable,” Amanda Hite, president of STR, said in a statement. “However, gains are slowing as inflation rises faster than [average daily rates]. Demand remains at record levels with continued strength in the leisure segment and significant returns in the group business.”
A new strategy for business hotels
Business travel has not returned to pre-pandemic levels, and hybrid working models with more video conferencing may result in reduced need for business travel. That could prompt some to swan song brands like Sheraton, Westin, and Marriott’s eponymous brand for their historical reliance on business travel.
Capuano pointed out that these brands are all still viable in the current travel environment, but likely need a new development strategy. Rather than being focused on business districts, they can function better as components within a mixed-use development.
For example, the Tampa Edition is part of the larger $3.5 billion Water Street Tampa project, which included a residential component, a Marriott hotel renovation, a new JW Marriott, and other amenities such as shops and restaurants.
“A large, full-service anchor hotel can really define the overall positioning and quality of the project,” said Capuano.
In short, perhaps the reports of the Sheraton’s death (and the deaths of Marriott’s other business-focused hotels) were grossly exaggerated.