Largest Hotel Companies Report Strong Q2 Earnings

Second-quarter performance among several major hotel companies reported in the past month underscored a healthy travel market marked by surging occupancy, higher revenue per available room and growing profits. Hilton Hotels Corp., Marriott International and Starwood Hotels & Resorts Worldwide Inc. all noted profits during the second quarter and highlighted optimistic forecasts for full-year 2005.

Marriott International during the second quarter gained in all financial areas, year over year, boasting higher revenue per available room, growing occupancy and average daily rate in all hotel tiers, the company said during its recent quarterly earnings call.

The multi-brand hotel company's quarterly revenue jumped 11 percent to $2.7 billion and is indicative of the general health of the hotel industry.

The company last month said systemwide RevPAR increased 11 percent from the same period in 2004, anchored by an 8.9 percent jump in ADR and a 1.5 percentage-point upswing in occupancy, which now stands at more than 75 percent.

"The economy continues to be strong and so does our business," Marriott International chairman and CEO J.W. Marriott Jr. said in a statement. "In the second quarter, surging U.S. travel demand drove occupancy and room rates higher in most markets, from New York and Seattle to New Orleans and San Francisco. Marriott's occupancy and room rates improved due to accelerating corporate demand, growing meeting attendance and increasing global travel."

Performance in North America fell slightly below systemwide averages, but Marriott still recorded strong growth for the region, with RevPAR jumping by 10 percent, occupancy up by 1 percentage point and ADR increasing by 8.5 percent.

"With robust industry demand, our increasing share of expected low industry supply growth and the strength of our brand preference, we expect continued pricing power and strong financial results for the remainder of 2005 and beyond," Marriott said.

Hilton recorded a quarterly record with a net income of $202 million, compared with $75 million in the 2004 quarter.

Citing increases in room nights and continued power in pricing for the company's owned hotels, Hilton said owned-hotel revenue per available room was up 9.4 percent, anchored by double-digit RevPAR gains in New York, Hawaii, Boston and Chicago.

"Many of the hotels in our most important markets are running essentially full, with occupancies well into the 80s and in the case of New York City in the 90s, bringing the pricing power that comes with increased travel demand and limited new supply. We are particularly encouraged by strong results in Chicago which, as we anticipated, improved significantly in the second quarter," said Stephen Bollenbach, Hilton co-chairman and CEO.

Across its brands, the company said revenue at owned hotels totaled $575 million in the second quarter, up 5 percent from the same period in 2004. Owned properties' occupancy inched up 2.2 points to 80.1 percent as ADR jumped 6.4 percent. "Approximately 70 percent of the quarterly RevPAR increase at the comparable owned hotels was attributable to the ADR gains," the company said in a statement.

Hilton said it added 37 properties—totaling 4,689 rooms—to its system during the quarter, while removing 12 hotels. The company expected the growth to continue. "The company's development pipeline is the largest it has ever been, with approximately 520 hotels and 64,000 rooms at June 30, 2005," the company said.

With its income for the quarter totaling $156 million, up $49 million compared with the same period last year, Starwood also was the beneficiary of occupancy and average daily rate gains.

RevPAR jumped 12.7 percent in North America and 12.3 percent worldwide, as average daily rate increased 9 percent and 7.5 percent in North America and worldwide.

Like Hilton, Starwood CEO Steven Heyer said the company's pipeline "remains stronger than ever," particularly in light of the company's planned midprice brand Project XYZ, which the company expects to begin opening late next year (BTN, June 20).

"Our results this quarter were outstanding and we are pleased to be raising our guidance for the remainder of the year," Heyer said. "For the eleventh quarter in a row, we've gained market share. I am thrilled with the progress we are making on our brand-building efforts and service innovation, which I believe will continue to keep us ahead of our competition and will accelerate our market share growth."

PricewaterhouseCoopers, in a report released last month, forecasted U.S. lodging profits to hit $20.9 billion in this year. Although the projection is $1.6 billion shy of the record profits set in 2000, PwC projected the bar would be reset in 2006, with $25 billion in profits. Strong demand is fueling growth in hotel earnings this year. PwC forecasted occupancy this year to grow 4.2 percent over 2004, to a record 2,847,000 occupied rooms per night.

The hotels share PwC's optimism. Marriott said it expected North American RevPAR to increase between 8 percent and 10 percent for full-year 2005. Hilton revised RevPAR forecasts upward for 2005 to increase between 9.5 percent and 10.5 percent. Starwood also said it expected RevPAR for the full year to increase by 10 percent to 12 percent.

"With each of our businesses performing well and the evidence pointing to continued strong trends in our industry, we remain confident and optimistic as to our prospects," said Hilton's Bollenbach.