Despite high inflation, a easing of the economy and fears of a recession, the hotel industry has not slowed down.
On the contrary, Hilton CEO Chris Naseta predicts that the hotel chain “will have the biggest summer we have ever seen in our 103-year history this summer.”
Several industries have been hit as hard as travel by the Covid-19 pandemic, which has curtailed almost all leisure and business travel plans. But as vaccination levels and loosening restrictions spread across the country, passengers are returning. In May, global leisure and business flights exceeded 2019 levels for the first time since the pandemic began.
But while this comes at a price driven by both high demand from travelers and other inflationary pressures, hotel operators still believe there is room for further price increases.
“The price has gone up for everything, so we are no different than when you go to a gas station, a grocery store, or any other aspect of life; that’s at discretion, “Naseta told CNBC’s Squawk on the Street on Monday.
Naseta said two things kept demand high: more than $ 2.5 trillion in additional leisure savings for consumers and strong corporate balance sheets combined with “very good” profitability.
“Two years have passed, both in terms of leisure and in terms of the business of meetings and events, without being able to do the things they have to do,” he said. “They have a discretionary income in both segments to do so, and they need it, and that’s matched by demand.”
Marriott CEO Tony Capuano said that on Remembrance Day weekend, the company’s revenue from the available room, which measures the hotel’s efficiency, increased by about 25% in 2022 compared to 2019. In the luxury portfolio of Marriott which includes hotels such as JW Marriott, Ritz-Carlton and St. Regis, these hotels saw a nearly 30% increase in prices in the first quarter of 2022 compared to 2019.
“I think while we provide services that can be challenged in markets where work is difficult, we continue to see really remarkable prices,” Capuano told Closing Bell on Monday. He noted that while there was “extremely strong potential for percentages” in places such as leisure and coastal destinations, “in the middle of the country, some of the city’s markets have not returned so quickly.”
Another possible boost in demand may come as the Biden administration has already rejected Covid-19 testing requirements for overseas passengers.
While other countries such as the United Kingdom and Greece have long raised their requirements, the United States still requires passengers to provide evidence of a negative Covid-19 test the day before boarding a flight to the United States, regardless of their vaccination status. This was one of the last countries to still apply such a rule.
Leaders in the tourism industry say the restriction has hampered demand for international travel. “Requiring pre-departure testing creates uncertainty for passengers, another hurdle that could lead them to choose a destination with less friction,” Capuano told CNBC’s Sima Modi.
“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 tourism industry,” said Roger Dow, president of the American Tourism Association. “International inbound travel is vital for businesses and workers across the country who are struggling to recoup losses from this valuable sector.”
Hyatt President and CEO Mark Hoplamazian told Squawk on the Street on Tuesday that foreign travelers in the United States spend much more than domestic passengers and that testing requirements “create friction”.
But even without passengers who may have stopped traveling due to demand, demand remains high. “To a large extent, all business segments and leisure work on all cylinders,” Hoplamazyan said.
Keith Bar, CEO of IHG Hotels & Resorts, which owns brands such as InterContinental and Holiday Inn, said he expects demand to continue growing for the rest of the year as travel is more normal after the pandemic.
This is likely to come with further price increases, as inflation and other costs are taken into account.
“Demand is so strong… we have the ability to price, but in fact we are not even up to date with inflation,” Bar told Closing Bell on Tuesday. “There is still some power in this business for pricing and demand will continue to come in the summer.”
These prices are likely to only rise as there will be “very little new capacity growing in the industry,” Naseta said. “The laws of supply and demand, the laws of economics are alive and well,” he said.
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