Hotels Are More Expensive And Prices Will Continue to Go Up
Inflation has hit new highs this year and prices for most goods and services keep going up. That includes hotels as well. However, even with the higher prices and fears of a recession, the hotel industry is is still seeing a strong demand. And it could be the best summer ever for some companies.
Covid-19 had a huge impact on travel, specially early on. Most planes were grounded, and hotel rooms were empty in 2020. But with more vaccinations and boosters, and less restrictions, travel demand is spiking. In May, global leisure and business flights topped 2019 levels for the first time CNBC reports.
With inflation and increasing demand, hotel prices are now as high as ever, and are expected to continue to go up. And consumers now have more savings due to lower spending during the pandemic.
“Historically, most hotels can respond to inflation with price increases, but only luxury hotels have demonstrated that they can exceed the pace of inflation to achieve real gains. Economy hotels have the most difficulty raising prices enough to keep up,” said Bram Gallagher, CBRE senior hotel economist.
“The price has gone up for everything, so we’re not 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 CNBC’s “Squawk on the Street” on Monday.
Marriott CEO Tony Capuano said that over Memorial Day weekend the company’s revenue per available room (RevPAR), which measures hotel performance, was up about 25% in 2022 compared to 2019. Marriott’s luxury portfolio (that’s brands like JW Marriott, Ritz-Carlton, and St. Regis) saw nearly a 30% increase in rates in the first quarter of 2022 compared to 2019.
Demand in domestic markets is expected to grow, especially now that the White House dropped Covid-19 testing requirements for inbound air travel. The U.S. was one the last few countries to still have testing requirements in place, hurting international travel demand.
Hyatt president and CEO Mark Hoplamazian said on “Squawk on the Street” that foreign travelers to the U.S. spend a lot more than domestic travelers, and that the testing requirements were “creating friction.” But even without those travelers that were waiting for an end to testing, business and leisure demand remains high.
Keith Barr, the CEO of IHG Hotels & Resorts which owns brands like the InterContinental and Holiday Inn, said that he expects demand to continue to grow for the rest of the year.
Hotel prices prices will likely only grow as there will be very little “new capacity coming into the industry,” Nassetta said. “The laws of supply and demand, laws of economics, are alive and well”.