With the domestic hotel industry on the cusp of a widespread recovery, operators are breathing a sigh of relief. But business travelers who have gotten used to low rates, the ability to book at the last minute and perks like free Wi-Fi and parking are less enthusiastic.
Travel managers, too, are finding that negotiating corporate rates for 2013 is much more challenging.
“We’re going to be seeing well above average increases in average room rate for at least the next three to four years,” said R. Mark Woodworth, president of PKF Hospitality Research.
Eileen Kelly, travel liaison at Blue Cross Blue Shield of Florida, said she had already run into the higher rates. “It’s not making my job easier,” she said. “It’s been a buyer’s market for the past three to four years.” She said the tide was turning toward sellers, with hotel operators seeking to raise her rate by 8 percent to 10 percent. “It’s going to be tough this year, because it’s their ballgame.”
Hotels in major cities, especially top-tier ones, have already recovered. “There are some markets where real negotiations are going on and rates will go up as much as 10 percent,” said Scott D. Berman, principal and U.S. industry leader for the hospitality and leisure practice at PricewaterhouseCoopers.
Experts predict that this recovery will spread throughout the country next year, particularly in upscale hotels that tend to be frequented by business travelers. “What we expect to see happen next year is kind of a continuation of what’s happening this year,” said Fred Deschamps, a vice president at Carlson Rezidor Hotel Group. “What we’ve seen this year is the big urban centers are pulling the U.S. market ahead. They’re a freight train pulling the U.S. market along.”
Woodworth said demand for rooms began increasing as early as 2010, shortly after the recession ended, but that the drop in travel had been so sharp that occupancy levels were only now approaching traditional norms.
As a result, outside of a handful of top markets, prices have not yet caught up to rising demand. “Rates have not come back as fast as they have in prior cycles,” Berman said.
But experts say the industry is approaching the tipping point for rates. According to PKF, the average hotel occupancy rate over the long term is just under 62 percent. PKF predicts that the industry will end 2012 with average occupancy of 61.4 percent, and will pass the historical average by the middle of next year.
“We literally had had a year and a half of consistent decline in lodging demand,” Woodworth said. “Not only was the length of it troubling, but the depth of it was damaging. What we need to have happen is for scarcity to return to the marketplace.”
Berman said that this scarcity of hotel rooms was a result of the continued reluctance of lenders to commit to new hotel construction projects. “In this cycle, with the banks standing on the sidelines, not making as many loans as they have historically, supply growth has diminished,” he said.
That means business travelers will find fewer rooms available, especially in major cities, Berman said. Since it takes a couple of years, at minimum, to build a full-service hotel from the ground up, “consumers will face more sold-out nights than they have been,” he said.
Rick Wakida, global travel manager at Atmel Corp., which makes semiconductors, said he expected both high prices and sellouts to become more common next year for the 1,200 travelers at his company. “In the most expensive markets, there’s going to be a premium for last-room availability,” he said. He added that he and other corporate travel managers would have to tell employees that they could no longer book at the last minute and expect rooms to be available.
Hotels are also looking to improve their bottom lines by increasing fees for extras like Internet access, breakfast and parking. Last year, hotels in the United States collected a record $1.85 billion in fees and surcharges, according to Bjorn Hanson, divisional dean of the Preston Robert Tisch Center for Hospitality, Tourism and Sports Management at New York University. This year, that amount is forecast to grow to $1.95 billion as a result of higher occupancy and higher fees.
Adept travel managers can often negotiate to eliminate the fees, especially if the hotel is pushing for a sharp increase in the room rate.
The higher fees are more of a burden on people like Dennis Moseley-Williams, who owns a consulting firm and travels about 150 days a year. These travelers don’t have the clout to bargain away extra charges.
“All the little niceties are eroding, and in general, fees are up,” Moseley-Williams said, adding that he recently paid $38 for two days of Wi-Fi at a hotel in San Francisco. “It’s so gradual — it’s just that it’s across the board.”