Despite high inflation, a slowing economy and fears of a recession, the hotel industry is not experiencing any slowdown.
It’s exactly the opposite, with Hilton CEO Chris Nassetta predicting that the hotel chain “will have the biggest summer we’ve ever seen in our 103-year history this summer.”
Few industries were as affected as travel by the Covid-19 pandemic, which halted almost all leisure and business travel plans. But as vaccination rates and loose restrictions have spread across the country, travelers have returned. In May, global leisure and business flights surpassed 2019 levels for the first time since the pandemic began.
But while this has come at a cost, driven by both high demand from travel companions and other inflationary pressures, hotel operators still believe there is room for further price increases.
“The price has gone up for everything, so we’re no different than when you go to a gas station, grocery store, or any other aspect of life; it’s discretionary,” Nassetta told Squawk on the Street. from CNBC on Monday. .
Nassetta said two things kept demand high: the leisure consumer’s more than $ 2.5 trillion in incremental savings and solid corporate balance sheets combined with “very good” profitability.
“They’ve been two years from both the leisure and business point of view with meetings and events without being able to do the things they need to do,” he said. “They have the availability of discretionary revenue in both segments to do so and they need it, and that is equating with demand.”
Marriott CEO Tony Capuano said that over Memorial Day weekend, the company’s revenue per available room, which measures hotel performance, increased by about 25% on 2022 compared to 2019. In the luxury Marriott portfolio, which includes hotels like JW Marriott, Ritz-Carlton and St. Regis, these hotels experienced an increase of almost 30% in rates in the first quarter of 2022 compared to 2019.
“I think while we’re providing the service, which can be challenged in markets where labor is tough, we continue to see really remarkable prices,” Capuano told Closing Bell on Monday. He noted that while there was “very strong tax potential” in places such as leisure destinations and coastal destinations, that “in the middle of the country, some of the urban markets have not returned so quickly.”
Another possible boost to demand could come as the Biden administration has reduced Covid-19 testing requirements for overseas air travelers.
Although other countries such as the United Kingdom and Greece have long raised their requirements, the United States still requires travelers to submit a negative Covid-19 test one day before boarding a flight. destined for the United States, regardless of vaccination status. It was one of the last countries to apply this rule.
Travel industry executives had argued that the restriction had been hurting the demand for international travel. “Requiring pre-departure tests creates uncertainty for travelers, another obstacle that can lead them to choose a less frictional destination,” Capuano said in a statement to CNBC’s Seema Mody.
“The Biden administration is to be commended for this action, which will welcome visitors from around the world and accelerate the recovery of the U.S. travel industry,” said Roger Dow, president of the Association. of US travel in a statement. “Inbound international travel is vital for companies and workers across the country who have struggled to make up for the losses of this valuable sector.”
Hyatt chairman and CEO Mark Hoplamazian told Squawk on the Street on Tuesday that foreign travelers to the U.S. spend much more than domestic travelers and that test requirements were “creating friction.”
But even without travelers who may have put their trips on hold given the requirement, demand remains high. “Overall, all business and leisure segments are firing at all cylinders,” Hoplamazian said.
Keith Barr, CEO of IHG Hotels & Resorts, which owns brands such as InterContinental and Holiday Inn, said he expects demand to continue to grow for the rest of the year as travel is more normalized after the pandemic.
This is likely to come with more price increases as inflation and other costs are taken into account more.
“Demand is so strong … we’re having the ability to set the price, but in fact, we haven’t even kept pace with inflation,” Barr told Closing Bell on Tuesday. “There’s still a bit of price power in this business going forward, and demand will continue to come in over the summer.”
These prices are likely to only grow, as there will be “very little incremental new capacity entering the industry,” Nassetta said. “The laws of supply and demand, the laws of economics, are alive and well,” he said.