Despite high inflation, a softening of the economy and fears of a recession, the hotel industry is not experiencing any decline.
It’s the exact opposite, with Hilton boss Chris Nassetta predicting that the hotel chain will “have the biggest summer we’ve ever seen in our 103-year history this summer.”
Few industries were hit as hard as travel by the Covid-19 pandemic, which dampened almost all leisure and business travel plans. But as vaccination rates and loosened restrictions have spread across the country, travelers have returned. In May, global leisure and business flights peaked at 2019 levels for the first time since the pandemic began.
But even though it has come with a cost, driven by both the high level of demand from fellow travelers and other inflationary pressures, hotel operators still believe that there is room to increase prices further.
“The price has gone up for everything, so we are no different than when you go to a gas station or the grocery store or other aspects of life; it̵[ads1]7;s discretionary,” Nassetta told CNBC’s “Squawk on the Street” on Monday.
Nassetta said two things kept demand high: the leisure consumer’s more than $ 2.5 trillion in incremental savings, and strong corporate balances coupled with “very good” profitability.
“They have gone two years from both a leisure and a business point of view with meetings and events without being able to do the things they need to do,” he said. “They have the availability of discretionary revenues in both segments to do so, and they have the need, and it’s being matched by demand.”
Marriott’s CEO Tony Capuano said that over Memorial Day weekend, the company’s revenue per available room, which measures hotel performance, was up approx. 25% in 2022 compared to 2019. In Marriott’s luxury portfolio, which includes hotels such as the JW Marriott, Ritz-Carlton, and St. Regis, these hotels saw almost a 30% increase in prices in the first quarter of 2022 compared to 2019.
“I think as long as we deliver on service, which can be challenged in markets where labor is difficult, we continue to see really remarkable prices,” Capuano told Closing Bell on Monday. He noted that although there was “excessively strong price potential” in places such as leisure and coastal destinations, that “in the middle of the country, some of the urban markets have not returned as quickly.”
Another possible increase in demand may come as the Biden administration has now dropped the Covid-19 test requirements for air travelers from abroad.
While other countries such as the United Kingdom and Greece have long waived their requirements, the United States still required travelers to provide evidence of a negative Covid-19 test one day before boarding a flight to the United States, regardless of vaccination status. It was one of the last countries to still enforce such a rule.
Leaders in the tourism industry had claimed that the restriction had damaged international travel demand. “Requiring pre-departure testing creates uncertainty for travelers, another obstacle that could lead them to choose a destination with less friction,” Capuano said in a statement to CNBC’s Seema Mody.
“The Biden administration should be commended for this action, which will welcome back visitors from around the world and accelerate the recovery of the US travel industry,” said Roger Dow, president of the US Travel Association in a statement. “International incoming travel is very important for companies and workers across the country who have struggled to recover losses from this valuable sector.”
Hyatt President and CEO Mark Hoplamazian said on “Squawk on the Street” on Tuesday that foreign travelers to the United States spend much more than domestic travelers, and that the test requirements “created friction.”
But even without travelers who may have put their trips on hold given the demand, demand is still high. “Pretty much across the board, all business segments and leisure are shot on all cylinders,” Hoplamazian said.
Keith Barr, CEO of IHG Hotels & Resorts, which owns brands such as InterContinental and Holiday Inn, said he expects demand to continue to grow for the rest of the year as travel becomes more normalized following the pandemic.
There will probably be further price increases as inflation and other costs are further included.
“Demand is so strong … we have the opportunity to price, but in fact we have not even kept up with inflation,” Barr told Closing Bell on Tuesday. “There is still some price power in this business going forward, and demand will continue to come through the summer.”
These prices are likely to grow only as there will be “very little incremental new capacity entering the industry,” Nassetta said. “The laws of supply and demand, economic laws, are alive and well,” he said.