“Hotels & Lodging Industry Outlook - Feb. 2011” plus 2 more |
- Hotels & Lodging Industry Outlook - Feb. 2011
- Expedia, Orbitz at center of tax fight between hotels, theme parks
- The Great Royal Wedding Lodging Rush: Hotels and Sublets Skyrocket
| Hotels & Lodging Industry Outlook - Feb. 2011 Posted: 02 Feb 2011 10:00 PM PST , On Thursday February 3, 2011, 1:00 am EST The hotels and lodging industry seems to be back in demand, thanks to the gradual global economic recovery. The industry has been witnessing a return of business travelers, with a rising demand for leisure. However, the rate of improvement in room rates still lags. Riding on the back of improvement in the U.S. economy and the consequent rise in operating metrics, most of the hoteliers have started reporting positive quarterly results. Profits are expected to rise further in 2011 as bookings continue to improve. Positive estimate revisions give us ample evidence of this growth momentum. Since the U.S. market is somewhat saturated, hoteliers are exploring growth opportunities abroad. International markets offer greater potential based on the higher pace of economic growth that they currently enjoy. The U.S. based companies are targeting fast-growing emerging economies. Industry stalwarts such as Starwood Hotels and Resorts Worldwide Inc. (NYSE: HOT - News) and Marriott International Inc. (NYSE: MAR - News) are specifically eyeing the Asia-Pacific region and Latin America as they promise solid growth going forward. The Asia-Pacific region gave a stellar performance during 2010. It was the only region to report double-digit RevPAR growth at year end. Major growth markets in Asia-Pacific, China and India, remained more or less unaffected by the global economic turmoil and are enjoying rising economic growth rates. The availability of local capital is another positive factor. China is all set to bring about a recovery in global tourism, and by 2020, is expected to be the world's largest travel destination. Both Starwood and Marriott derive their second largest revenue chunks from that country. While in the past, hotels in China were mainly occupied by Western travelers, today, more than 50% of the guests are Chinese. This is indicative of China's fast growing domestic travel market. Moreover, according to an analysis on the enrollment and travel trends of Starwood Preferred Guest members, China is expected to have 100 million outbound travelers by 2015. Metrics Analysis In evaluating hotel companies, we pay close attention to changes in average daily room rate (ADR) to figure out the likely pace of improvement in the sector. A key operating metric in the lodging industry is RevPAR (revenue per available room), which is derived by multiplying the occupancy percentage of a hotel over a given period by ADR over that same period. Changes in either occupancy or ADR will impact RevPAR, but with different implications for bottom-line profitability. Given the recovery in the U.S. economy, it isn't surprising that hotel occupancy percentages have stepped up. However, declining occupancy percentages last year, compelled some hotel owners to slash room rates in an effort to fill beds. In most cases, this tactic will result in material long-term damage to the business primarily for two reasons: First, increase in occupancy is accompanied by escalating operating expenses. For every room that is filled, there are additional costs such as housekeeping, laundry and utilities that must be borne. Margins are compressed when room rates decline and variable operating expenses increase. Changes in ADR, however, affect almost entirely the bottom line. Second, and more importantly, cuts in ADR will be difficult to recoup when the operating environment eventually improves. After slashing room rates in an effort to fill a hotel, attempts to restore these to previous levels are likely to be met with significant resistance from clients. The ability to benefit from an improving economy will thus be delayed. Finally, the ability of the lodging companies to sustain room rates should have a significant impact on their capability to weather the downturn. Lowering room tariffs should be an absolute last-ditch effort to survive. By keeping an eye on changes in ADR, investors can gain some insight into companies that are best poised to benefit when the economy rebounds. OPPORTUNITIES We believe the hotel industry has begun to turn around. We expect this trend of positive demand growth to continue in 2011 and beyond. According to data from Smith Travel Research, the leading information and data provider for the lodging industry, the U.S. hotel industry reported single-digit increases on all three key performance measurements -- occupancy level, ADR and RevPAR -- during the week of January 16-22, 2011. Comparing the operating metrics with the prior-year period, the industry's occupancy increased 6.5% to 49.8%. As a result, RevPAR rose 9.3% to $47.99. The week ended with a 2.6% rise in RevPar to reach $47.99 at the end of the week. Moreover, supply and demand are likely to have grown 2.2% and 6.6%, respectively, in 2010. Smith Travel Research projects that the hotel industry will end 2011 with increases in all three key metrics. The expected growth is 1.4% for Occupancy to 57.9%, 3.9% for ADR to $101.55 and 5.3% for RevPar to $58.75. Both supply and demand are projected to rise 1.1% and 2.5%, respectively. The operating environment in the international market is better, propelling hoteliers to grab bigger shares of the overseas pie. Hotels in the Asia-Pacific region experienced increases on all three key performance metrics for year-end 2010, according to data from Smith Travel Research. The region's Occupancy, ADR and RevPar increased a respective 8.9%, 11.4% and 21.3% to 66.0%, $132.80 and $87.69. The hoteliers are also focused on rebalancing their portfolios by increasing contributions from managed and franchised hotels. This fee-based business is attractive as growth is powered by multiple sources-RevPAR growth, unit additions and incentive fee escalation. The business is also capital efficient as the owner/developer partners provide the capital and the company then earns a fee by managing/franchising the property. Currently, there are a number of stocks in the hotel industry universe with a Zacks #2 Rank (Buy). These include Intercontinental Hotels Group plc (NYSE: IHG - News) and Morgans Hotel Group Co. (NasdaqGM: MHGC - News). The stock with Zacks #1 Rank (Strong Buy) is 7 Days Group Holdings Ltd. (NYSE: SVN - News). We believe companies such as Wyndham (NYSE: WYN - News) are better positioned as they are likely to benefit from their repositioning as a more fee-for-service based business. Marriott and Starwood should also benefit from their global pipeline. WEAKNESSES Though occupancy levels have fairly picked up, ADR is yet to show meaningful improvement in the U.S. We believe the rate of upside in ADR continues to lag due to the lack of a significant positive catalyst. According to data from Smith Travel Research, the U.S. hotel industry reported a meager rise of 0.6% in ADR accompanied with a 5.6% increase in occupancy for year-end 2010. Notably, visibility on booking and overall pricing continues to be low and demand recovery is fragile. The booking window, though longer than it was in the time of recession, is still shorter than the normal level. Given the lower levels of room revenue, margin expansion remained depressed. However, we expect higher room rates in 2011, though the pace of improvement will remain tardy in tandem with sluggish economic growth. According to data from Smith Travel Research, the U.S. hotel industry is expected to have ended 2010 with an increase of 4.4% in occupancy and 4.3% in RevPAR, but ADR will remain flat with the prior-year period. The competition is also building up across the sector. Every hotel company is not only competing with major hotel chains in national and international venues but also with home-grown hotels in regional markets. Heightened competition and potential addition of new supply will restrict market share. By the look of things, we currently refrain from being too enthusiastic on a number of stocks in our universe, which continue to have a Zacks #3 Rank (Hold). These include Wynn Resorts Limited (NasdaqGS: WYNN - News), Hyatt Hotels Corporation (NYSE: H - News), Choice Hotels International Inc. (NYSE: CHH - News), Great Wolf Resorts Inc. (NasdaqGM: WOLF - News), Red Lion Hotels Corporation (NYSE: RLH - News) and Orient-Express Hotels Ltd. (NYSE: OEH - News). We also remain concerned about the prospects of The Marcus Corporation (NYSE: MCS - News), which currently has a Zacks #4 Rank (Sell), and Home Inns & Hotels Management Inc. (NasdaqGS: HMIN - News), with a Zacks #5 Rank (Strong Sell). CHOICE HTL INTL (CHH): Free Stock Analysis Report RED LION HOTELS (RLH): Free Stock Analysis Report STARWOOD HOTELS (HOT): Free Stock Analysis Report HOME INNS&HOTEL (HMIN): Free Stock Analysis Report HYATT HOTELS CP (H): Free Stock Analysis Report INTERCONTL HTLS (IHG): Free Stock Analysis Report MARRIOTT INTL-A (MAR): Free Stock Analysis Report MORGANS HOTEL (MHGC): Free Stock Analysis Report MARCUS CORP (MCS): Free Stock Analysis Report ORIENT EXP HOTL (OEH): Free Stock Analysis Report 7 DAYS GRP-ADR (SVN): Free Stock Analysis Report GREAT WOLF RSRT (WOLF): Free Stock Analysis Report WYNDHAM WORLDWD (WYN): Free Stock Analysis Report WYNN RESRTS LTD (WYNN): Free Stock Analysis Report Follow Yahoo! Finance on ; become a fan on Facebook. 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| Expedia, Orbitz at center of tax fight between hotels, theme parks Posted: 06 Feb 2011 06:29 PM PST Some of the biggest players within Florida's $60 billion-a-year tourism industry are at odds in a battle over how online-travel companies such as Expedia Inc. and Orbitz Worldwide Inc. should be taxed. One on side are hotel heavyweights such as Marriott International and Hilton Hotels & Resorts, which are out to eliminate what they contend is a competitive advantage the online companies have in selling hotel rooms. Aligned with the Internet companies are theme-park giants Walt Disney World and Universal Orlando, motivated at least in part by concerns that requiring Expedia, Orbitz and others to absorb higher taxes could jeopardize a tax advantage the resorts themselves now have when selling vacation packages. The dispute threatens to derail the online-travel industry's years-long bid to persuade the Florida Legislature to shield it from extra taxes and, in doing so, defuse lawsuits brought by local governments across the state, including Orange County, that accuse the Internet companies of ducking out on millions of dollars a year in hotel taxes. "This one's going to be a real tough one," said Carol Dover, president and chief executive officer of the Florida Restaurant & Lodging Association, whose 10,000 members include hotels, theme parks and online-travel companies. Association leaders voted during a conference call last week to remain neutral in the fight. The wrangling revolves around how Internet sites that sell hotel rooms should be taxed. The way the system generally works now, online-travel companies sign contracts with hotels in which the hotels make limited numbers of rooms available at discounted, wholesale rates. The Internet companies then sell those rooms online to travelers at a higher, retail price. The Internet companies collect the larger amount from the travelers, pay the hotels the prearranged wholesale rate, and pocket the difference. They pay sales and hotel taxes only on that lower rate. The online-travel industry says the difference between the wholesale price and retail price amounts to a "service fee" — they are helping travelers find and compare hotel rooms and facilitating the reservations process — and so it shouldn't be subject to a tax. But local governments across the country, including those from the Panhandle to the Keys in Florida, contend that the companies are supposed to be paying tax on the total amount consumers are paying to rent the rooms. A lot of money is at stake in Florida: State economists have calculated that paying taxes on the wholesale rate saves the Internet businesses — and costs Florida's counties — more than $20 million a year in hotel taxes alone. The online-travel companies have been lobbying Florida lawmakers for several years to pass a law declaring their markup off limits to taxes. Legislation nearly passed in 2010 and has been filed again this year; it gets its first hearing Tuesday before the state Senate's Community Affairs Committee. But this year the online-travel companies have run into a new obstacle: the hotel industry. In a letter to Florida Gov. Rick Scott sent late last month, the American Hotel & Lodging Association said permitting Internet businesses to pay taxes only on the wholesale rate would create "two different types of tax treatment for identical transactions … and [give] out-of-state OTCs a tax advantage over Florida hotels." What's more, the hotel group said its members fear that, if local governments are forever prohibited from collecting taxes on the full rate charged to consumers, they may attempt to make up the difference from hotels themselves, perhaps by raising the overall tax rate or making hoteliers responsible for tracking down the full price paid by the consumer. "There are any number of things that they could try to extract out of hotels to make up what they perceive is the difference," said Shawn McBurney, a lobbyist for the Washington-based hotel association, which has also been battling the online-travel companies in front of Congress to stop a national law on the issue. In addition to the association, more than a half-dozen major hotel companies signed the letter to Scott. Among them: Marriott, Hilton, Starwood Hotels & Resorts Worldwide, InterContinental Hotels Group, Choice Hotels International, and Best Western. The hotels, particularly the well-known international chains, have another incentive, as well: Forcing the third-party Internet sites to pay higher taxes could make their rates less attractive and ultimately drive consumers to book rooms through a hotel's own website. Critics also accuse the hotel companies of opposing the Florida legislation to gain leverage with the online-travel companies in negotiations on future contracts for hotel rooms. "It's all about trying to make the hotels have the upper hand in this whole negotiating bit," said state Rep. Jimmy Patronis, a Republican from Panama City who in the past has sponsored legislation to help the online-travel companies. But while the hotels have emerged as vocal opponents of the measure, the online-travel industry has lined up its own big-name allies: Walt Disney World and Universal Orlando. 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| The Great Royal Wedding Lodging Rush: Hotels and Sublets Skyrocket Posted: 02 Feb 2011 06:58 AM PST  A souvenir place mat for the royal wedding of Britain's Prince William and Kate Middleton Carl Court / AFP / Getty Images Will you travel to London for the wedding of Prince William and Kate Middleton? Be prepared to pay royally for the privilege. When the royal couple set the date for their big day in late November, hotel-comparison websites noticed a bizarre phenomenon in their bookings and searches. "Hotels.com reports that searches for rooms on and around April 29 have jumped 60% year on year, and discount-hotel website LateRooms.com says hotel bookings for the week of April 29 are three times higher than for the week before," TIME's William Lee Adams reported in December. (More on TIME.com: See NewsFeed's complete coverage of the royal wedding.) Now, with 1.1 million people expected to travel to the capital to attend a wedding they're not even invited to, Londoners are preparing to get the most out of their international visitors. The Waldorf Hilton, located a mere 15-minute walk away from Westminster Abbey, will fetch $560 per night during the wedding weekend, compared with the $430 it's charging during the previous week. Hilton Worldwide Inc.'s Trafalgar Square and Green Park hotels are already fully booked. "Whenever there's a huge surge in demand, which this will be, there will always be pressure," says Miles Quest, spokesman for the British Hospitality Association. (More on TIME.com: See how to turn Kate Middleton into a princess.) Some Londoners will become part-time landlords, as they have put up rooms for rent on websites such as London Rent My House and Gumtree, the U.K. equivalent of Craigslist. One such wanna-be landlord has set the price for a week's rent at $2,835. That's more than double the average rent for a two-bed apartment in the same area. Cashing in on the royal wedding will certainly bring big bucks to London. (Via Bloomberg) 51.506169 -0.127145 This entry passed through the Full-Text RSS service — if this is your content and you're reading it on someone else's site, please read our FAQ page at fivefilters.org/content-only/faq.php |
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