Hotel CEOs Are Loving Limited Rooms and High Prices

25.08.2023 - 13:29 / skift.com / Mark Hoplamazian / Sean Oneill / Sébastien Bazin / Keith Barr

Hotel bookings will continue to boom despite inflation. A lack of hotel construction is giving pricing power to existing hotels. At the same time, rising demand from corporate group events and international travelers from China and India are tailwinds supporting the sector.

That was the word on Monday from CEOs of the world’s largest hotel companies at the New York University International Hospitality Industry Investment Conference.

“The future has probably never been as strong as it is today,” said Sébastien Bazin, chairman and CEO of Accor, the largest hotel group based in Europe. “It’s stronger than pre-pandemic, though different in nature.”

Many travelers complain about today’s hotel prices, and sometimes with good reason.

“For the last six months, prices in Paris are 50% above 2019 levels. In London, 30% above,” Bazin said. “For 20 years we weren’t daring enough [in pricing].”

Yet the consensus of the executives was that, on average, hotels have just finally caught up with where pricing should be given supply and demand constraints and inflationary effects.

“For decades, owners were asking us about wanting to see more rate growth, and I think we’ve just caught up to where we should have been over time,” said Keith Barr, CEO of IHG Hotels & Resorts, which owns Holiday Inn and other brands.

Once inflation and the reversion to ordinary booking patterns materialize, pricing will seem less distorted, executives argued.

“For our investors, we forecasted our business’s progression between 2020 and 2027 and predicted a 3.5% compound annual growth rate in its average daily rate, said Mark Hoplamazian, president and CEO of Hyatt Hotels Corp. “It’s true on the short-term horizon we’re comparing to, it seems distended, but if you think about it over a longer period, hotel rates are not that outsized — especially given limited supply growth.”

Data supports the overall thesis. “In the U.S., the average daily rate on a real basis is a dollar off where we were in March 2019,” said Amanda Hite, president of STR, the leader in hotel performance benchmarking. “So for all the price growth we’ve seen, we aren’t back to where we were pre-pandemic, on average overall.”

The hotel sector has haves and have-nots. In the U.S. East Coast and Southeast cities are doing well. But cities like Seattle, Portland, San Francisco, and Minneapolis are incredibly weak.

As some leisure travelers pull back, group business planned ahead and on the books — though at a typically lower average daily rate — will likely support the hotel sector.

STR is forecasting a modest growth slowdown for U.S. hotels. This year, it predicts 5% growth in revenue per available room, a key industry metric. Next year, it predicts 4.6% growth.

“This year