Why Marriott, Hilton and Hyatt say hotel prices are only going up
Despite high inflation, a slowing economy and fears of a recession, the hospitality industry is not experiencing any downturn.
It’s the exact opposite, with Hilton CEO Chris Nassetta predicting the hotel chain “will have the biggest summer we’ve ever seen in our 103-year history this summer.”
Few industries have been hit as hard as travel by the Covid-19 pandemic, which has dampened nearly all leisure and business travel plans. But as vaccination rates and eased restrictions spread across the country, travelers have returned. In May, leisure and business flights around the world exceeded 2019 levels for the first time since the start of the pandemic.
But although this comes at a cost, driven both by the high level of demand from other travelers and by other inflationary pressures, hoteliers still believe there is room to raise prices further.
“The price has gone up for everything, so we’re no different than when you go to a gas pump or the grocery store or any other aspect of life; it’s discretionary,” Nassetta said on “Squawk on the Street” from CNBC on Monday.
Nassetta said two things are keeping demand high: the more than $2.5 trillion in additional savings from leisure consumers and strong corporate balance sheets coupled with “very good” profitability.
“They’ve gone two years both from a leisure standpoint and a business standpoint with meetings and events not being able to do the things they need to do,” he said. “They have the availability of discretionary income in both segments to do that and they need it, and it matches the demand.”
Marriott CEO Tony Capuano said over Memorial Day weekend, the company’s revenue per available room, which measures hotel performance, increased about 25% in 2022. compared to 2019. In Marriott’s luxury portfolio, which includes hotels like JW Marriott, Ritz-Carlton and St. Regis, these hotels saw their rates increase by nearly 30% in the first quarter of 2022 compared to 2019.
“I think as long as we provide the service, which can be challenged in hard labor markets, we continue to see really remarkable pricing,” Capuano said on “Closing Bell” Monday. He noted that while there was “extremely high rate potential” in places like leisure destinations and coastal destinations, that “the central part of the country, some of the urban markets have not come back as quickly.”
Another possible increase in demand could come from the fact that the Biden administration has now dropped Covid-19 testing requirements for air travelers arriving from abroad.
While other countries like the UK and Greece have long since lifted their requirements, the US still requires travelers to show proof of a negative Covid-19 test one day before boarding a flight. to the United States, regardless of their vaccination status. It was one of the last countries to apply such a rule.
Travel industry executives had argued the restriction had hurt demand for international travel. “Requiring pre-departure testing creates uncertainty for travelers, yet another hurdle that can lead them to choose a destination with less friction,” Capuano said in a statement to CNBC’s Seema Mody.
“The Biden administration is to be commended for this action, which will once again welcome visitors from around the world and accelerate the recovery of the American travel industry,” Roger Dow, president of the US Travel Association, said in a statement. “International inbound travel is vitally important to businesses and workers across the country who have struggled to recoup losses from this valuable sector.”
Hyatt President and CEO Mark Hoplamazian told “Squawk on the Street” on Tuesday that foreign travelers to the United States spend significantly more than domestic travelers and that testing requirements “create friction.”
But even without travelers who may have suspended trips given the requirement, demand remains high. “Pretty much across the board, all commercial and leisure segments are all operating at full capacity,” Hoplamazian said.
Keith Barr, CEO of IHG Hotels & Resorts, which owns brands like InterContinental and Holiday Inn, said he expects demand to continue growing for the rest of the year as travel is more normalized after the pandemic.
This will likely be accompanied by further price increases as inflation and other costs are taken into account more.
“The demand is so strong…we have the ability to price, but in fact we haven’t even kept pace with inflation,” Barr said on “Closing Bell” on Tuesday. “There is still some pricing power in this sector going forward, and the demand will continue to exist throughout the summer.”
Those prices will likely only go up because there will be “very little additional new capacity in the industry,” Nassetta said. “The laws of supply and demand, the laws of economics, are alive and well,” he said.