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Hotel costs going up

Experts blame a rise in business travel as well as a trend away from discounting.
Image: New York Marriott Brooklyn
Adi Dor, right, rooms control clerk of the New York Marriott Brooklyn, greets Jeff Hagen, of Phoenix, in front of a mural of the Brooklyn Bridge at the hotel's front deskSuzanne Plunkett / AP
/ Source: Reuters

The recovery in business travel has a dark side for corporations returning to the road: Higher prices for hotel rooms.

Indeed, a sharp increase in overall lodging prices was a main factor in the rise in consumer prices in September.

In some parts of the country, popular properties have been sold out at mid-week.

“In general, life is good for the U.S. hotel industry,” says Jan Freitag, director of client services at Smith Travel Research, a Hendersonville, Tennessee-based authority on lodging industry performance.

In the 25 largest U.S. markets—which include cities such as New York, Washington, Chicago, Boston and Los Angeles—he said room occupancy has been averaging more than 67 percent for the first eight months of 2004, an increase of 5.8 percentage points over the same period a year earlier.

On one Wednesday night in October, more than 94 percent of available rooms in New York City were booked, and a week later, on another mid-week night, occupancy was at 85 percent, he said. Mid-week nights are generally more heavily booked for business travel purposes, while weekends more often cater to leisure travelers.

“Occupancies have been healthy, especially in business travel destinations,” Freitag said. “One thing follows the other—the travelers come back, rates go up.”

Judy Siguaw, a marketing professor at Cornell University's School of Hotel Administration in Ithaca, New York, says it appears the major hotel chains are doing well enough that they now longer have to put as much excess room inventory up for sale at discounted prices on third-party booking sites operating online.

Business travel has come back, she adds, “because you can only stay away from your customers so long. Teleconferencing and the like can be difficult to sustain. Face-to-face (contact) is much more effective.”

American Express in its recent business travel forecast for 2005 projects that hotel room rates will rise by up to 3 percent in North America and by up to 4 percent in Asian Pacific Rim countries. In the latter region, it says growth in travel to India and China is a major factor with demand outstripping the supply of rooms, especially in places where U.S. and other businesses have established off-shore operations.

The forecast sees lower room rate increases—of up to 1 percent and 2 percent respectively— for Europe and the Latin American/Caribbean regions.

In general, the environment heading into next year is going to be a challenging one for corporations trying to negotiate block rates or favorable rates in exchange for doing business with an individual property or chain, according to Matthew Davis, director of global consulting services for American Express.

“The main driver is the economic recovery,” he said. “Corporate travelers need to lock in those rates early. Those last-minute (cheaper) rates we got over the last two to three years are not going to be there.”