If you thought the silver lining of economic uncertainty was a possible reduction in hotel rates, you’re out of luck.
Hotels were a major source of inflation in the US last summer as people were eager to travel after pandemic restrictions were lifted in many parts of the world. Attempts to contain inflation, however, are leading economists to question whether the world is headed for a recession and whether it will be a brutal or more soft landing.
Don’t expect this uncertainty to usher in an era of cheap room rates at Marriott. In any case, the travel sector will become the shining star of the global economy.
“We’re pretty optimistic,” Marriott CEO Anthony Capuano told TPG Tuesday during a breakfast with reporters at the Americas Lodging Investment Summit in Los Angeles. “We don’t think we’ve tapped all the pent-up demand for travel.”
While China’s reopening has prompted 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 they remained at pre-pandemic levels for the first two years of the pandemic. Capuano also pointed to the faster-than-expected return of corporate group travel as another source of demand that could drive up hotel prices.
“We are delighted with the pace at which group demand has recovered,” he added.
Capuano didn’t provide much information on rate specifics in light of the quiet period ahead of the company’s quarterly earnings slated for next month. He did indicate that, based on the data, demand levels show no signs that owners could lose some of the power they have over prices.
There’s a 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 data can change quickly, Capuano noted.
“Obviously when we look at the data, we’re watching very, very closely all the economic trends, all the discussions about headwinds [and] all the debate about the recession environment,” he said. “But we don’t see it reflected in the data yet.”
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No summer bargains – but no gouges either
Before your wallet starts crying, there’s a bit of good news.
While hotel prices may be higher than last year, they are unlikely to rise as much as they did in the immediate aftermath of the lifting of pandemic restrictions. A STR presentation at the ALIS conference showed that US hotel rates rose more than 19% last year.
That growth rate is expected to slow to just over 2% this year.
“Even if the expected recession is more superficial, the performance growth in 2023 will be quite remarkable,” STR president Amanda Hite said in a statement. “However, profits are declining as inflation is rising faster than last year [average daily rates]. Demand continues to evolve 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 is not back to pre-pandemic levels, and hybrid work models with more video conferencing may mean less need for business travel. That could lead some to sing a swan song for brands like Sheraton, Westin, and Marriott’s eponymous brand, as they traditionally relied on business travel.
Capuano indicated that these brands are all still viable in today’s travel environment, but likely need a new development strategy. Instead of focusing on business districts, they are better off working as components within a mixed-use development.
For example, the Tampa Edition is part of the broader $3.5 billion Water Street Tampa project that included a residential component, a Marriott hotel renovation, a new JW Marriott, and other amenities such as shops and restaurants.
“A large anchor, full-service hotel can really define the overall positioning and quality of the project,” said Capuano.
In short, perhaps the reports of Sheraton’s death (and the death of Marriott’s other corporate hotels) were vastly exaggerated.