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Why Marriott, Hilton and Hyatt say hotel prices are only going up

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Despite high inflation, a softening economy, and fears of a recession, the hotel industry isn’t seeing any slowdown.

It’s the precise opposite, with Hilton CEO Chris Nassetta predicting that the hotel chain will “have the largest summer we have ever seen in our 103-year history this summer.”

Few industries were hit as hard as travel by the Covid-19 pandemic, which curbed nearly all leisure and business travel plans. But as vaccination rates and loosened restrictions have spread across the country, travelers have returned. In May, global leisure and business flights topped 2019 levels for the primary time for the reason that pandemic began.

But while that has include a price, driven by each the high level of demand from fellow travelers in addition to other inflationary pressures, hotel operators still imagine there’s room to further increase prices.

“The worth has gone up for the whole lot, so we’re not different than once you go to a gas pump or the food market or every other aspect of life; it’s discretionary,” Nassetta said on CNBC’s “Squawk on the Street” on Monday. 

Nassetta said that two things were keeping demand high: the leisure consumer’s greater than $2.5 trillion in incremental savings, and powerful corporate balance sheets paired with “superb” profitability.

“They’ve gone two years each from a leisure standpoint and a business standpoint with meetings and events without having the ability to do the things that they should do,” he said. “They’ve the provision of discretionary income in each segments to do it they usually have the necessity, and that’s being matched with demand.”

Marriott CEO Tony Capuano said that over Memorial Day weekend the corporate’s revenue per available room, which measures hotel performance, was up about 25% in 2022 in comparison with 2019. In Marriott’s luxury portfolio, which incorporates hotels like JW Marriott, Ritz-Carlton, and St. Regis, those hotels saw nearly a 30% increase in rates in the primary quarter of 2022 in comparison with 2019.

“I feel so long as we’re delivering on service, which will be challenged in markets where labor is difficult, we proceed to see really remarkable pricing,” Capuano said on “Closing Bell” on Monday. He did note that while there was “exceedingly strong rate potential” in places like leisure destinations and coastal destinations, that the “middle of the country, among the urban markets haven’t come back as quickly.” 

One other possible boost to demand could come because the Biden administration has now dropped Covid-19 testing requirements for air travelers from abroad.

While other countries like the UK and Greece have long lifted their requirements, the U.S. still required travelers to present proof of a negative Covid-19 test a day before boarding a U.S.-bound flight, no matter their vaccination status. It was one in all the last countries still enforcing such a rule.

Executives within the travel industry had argued that the restriction had been hurting international travel demand. “Requiring pre-departure testing creates uncertainty for travelers, yet another hurdle that will make them select a destination with less friction,” Capuano said in a press release to CNBC’s Seema Mody.

“The Biden administration is to be commended for this motion, which can welcome back visitors from all over the world and speed up the recovery of the U.S. travel industry,” Roger Dow, president of the U.S. Travel Association said in a press release. “International inbound travel is vitally vital to businesses and employees across the country who’ve struggled to regain losses from this helpful sector.”

Hyatt president and CEO Mark Hoplamazian said on “Squawk on the Street” on Tuesday that foreign travelers to the U.S. spend so much greater than domestic travelers, and that the testing requirements were “creating friction.”

But even without travelers that will have put their trips on hold given the requirement, demand stays high. “Just about across the board, all of the business segments and leisure are all firing on all cylinders,” Hoplamazian said.

Keith Barr, the CEO of IHG Hotels & Resorts which owns brands just like the InterContinental and Holiday Inn, said that he expects demand to proceed to grow for the remainder of the 12 months as travel is more normalized post-pandemic.

That may likely include further price increases as inflation and other costs are further factored in.

“The demand is so strong … we’re having the flexibility to cost, but actually, we have not even been keeping pace with inflation,” Barr said on “Closing Bell” on Tuesday. “There’s still some pricing power on this business moving forward, and demand will proceed to come back through the summer.”

Those prices will likely only grow as there will likely be “little or no incremental latest capability coming into the industry,” Nassetta said.”The laws of supply and demand, laws of economics, are alive and well,” he said.

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