Executives with the largest U.S. hotel companies put on a
brave face when reporting a slowdown in first-quarter room demand, but they
acknowledged that corporate-transient business, the lifeblood of many
select-service brands, has been a weak spot so far this year.
While reporting that group business and leisure
demand were at least as strong as expected, both Hilton Worldwide CEO
Christopher Nassetta and Marriott International CEO Arne Sorenson said in
earnings calls in late April that lower demand from individual business
travelers slowed the companies’ year-over-year growth in revenue per available
room (RevPAR) to the 2% range.
In the recent earnings reports, Hyatt Hotels, which is
far smaller than Hilton and Marriott, did not single out transient business as
a point of weakness, while Starwood Hotels & Resorts, which is in the
process of being acquired by Marriott, released its earnings without holding a
call with analysts to discuss its first-quarter results.
During Marriott’s April 28 call with analysts, Sorenson
called the U.S. first-quarter GDP growth rate of 0.5% “anemic.” During Hilton’s
April 27 conference call, Nassetta allowed that “there was a lot of fear in the
air at the end of last year and certainly the first couple of months of this
A bearish approach
While Hilton, Marriott and Hyatt all maintained their
2016 demand forecasts, SunTrust Robinson Humphrey analyst C. Patrick Scholes
took a more bearish approach. He asserted in his April 28 assessment of
Hilton’s earnings that it was “highly unlikely” the hotelier would achieve its
2016 forecast, citing particular demand weakness for select-service brands Hampton, Hilton Garden Inn and Homewood Suites.
The following day, he addressed Marriott’s earnings
report, asserting that “the opportunities for revenue managers to push rate
will become increasingly limited.”
Scholes echoed the sentiments of the Global Business
Travel Association (GBTA), which last month lowered its U.S. business-travel
forecast for 2016. The GBTA estimated that U.S. business travel spending would
edge up 1.9% this year, down from both the 3.1% growth rate in 2015 and the
3.7% forecast the GBTA had made for this year’s business-travel spending in
“If the past several years could be summed up as cautious
but slow growth, 2016 is looking like it will be summed up as uncertainty
causing slow growth,” GBTA executive director Michael McCormick said in an
April 12 statement.
Still, coming off a record year for U.S. revenue, the
hotel companies, with the exception of Starwood, reported higher first-quarter
profits despite flattening room demand.
Marriott’s first-quarter net income rose 5.8% from a year
earlier, to $219 million, Hilton’s first-quarter net income doubled, to $309
million, and Hyatt’s net income was up 54%, to $34 million. Starwood had the
weakest results, reporting a 9.1% drop in net income and a 1% increase in
In general, hoteliers chose to look at the first-quarter
drop-off in transient business demand as a blip rather than a long-term trend.
“I don’t think at the moment it is clear that this is a
macroeconomic thing,” Sorenson said on his company’s call as he reiterated
Marriott’s RevPAR growth forecast of about 4% for 2016. “But when you read the
press, you can see a number of big companies who are reducing head count
because of the struggle to grow top line.”
STR’s Freitag: ‘It’s going to be fine’
Jan Freitag, senior vice president of hotel research firm STR, admitted that he was “a little surprised” by how much
transient-business weakness had pulled down first-quarter revenue numbers, but
he stopped short of being bearish about the hotels’ prospects for the rest of
That’s because the largest U.S. companies are
geographically balanced enough so that a company’s properties in high-demand
San Francisco, for example, can offset the impact of New York’s supply growth,
while strength in an area like Florida could take the sting out of lower demand
in Houston, a market reliant on the oil sector.
“It’s going to be fine,” Freitag said, adding that a
tapering off of growth relative to the past two years doesn’t spell disaster.
“There aren’t any great results to be had anymore. Now, it’s about grinding it
out and keeping an eye on your bottom line for cost control.”