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

Despite high inflation, a softening economy, and fears of a recession, the hotel industry is not seeing any slowdown.

It’s the exact opposite, with Hilton CEO Chris Nassetta predicting that the hotel chain will “have the biggest summer we’ve 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 first time since the pandemic started.

But while that has come with a cost, driven by both the high level of demand from fellow travelers as well as other inflationary pressures, hotel operators still believe there is room to further increase prices.

“The price has gone up for everything, so we’re not different than when you go to a gas pump or the grocery store or any 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 more than $2.5 trillion in incremental savings, and strong corporate balance sheets paired with “very good” profitability.

“They’ve gone two years both from a leisure point of view and a business point of view with meetings and events without being able to do the things that they need to do,” he said. “They have the availability of discretionary income in both segments to do it and they have the need, and that is being matched with demand.”

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

“I think as long as we’re delivering on service, which can be challenged in markets where labor is difficult, we continue 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, some of the urban markets have not come back as quickly.” 

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

While other countries like the United Kingdom 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, regardless of their vaccination status. It was one of the last countries still enforcing such a rule.

Executives in the travel industry had argued that the restriction had been hurting international travel demand. “Requiring pre-departure testing creates uncertainty for travelers, one more hurdle that may lead them to choose a destination with less friction,” Capuano said in a statement to CNBC’s Seema Mody.

“The Biden administration is to be commended for this action, which will welcome back visitors from around the world and accelerate the recovery of the U.S. travel industry,” Roger Dow, president of the U.S. Travel Association said in a statement. “International inbound travel is vitally important to businesses and workers across the country who have struggled to regain losses from this valuable sector.”

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

But even without travelers that may have put their trips on hold given the requirement, demand remains high. “Pretty much across the board, all the business segments and leisure are all firing on all cylinders,” Hoplamazian said.

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

That will likely come with further price increases as inflation and other costs are further factored in.

“The demand is so strong … we’re having the ability to price, but in fact, we haven’t even been keeping pace with inflation,” Barr said on “Closing Bell” on Tuesday. “There’s still some pricing power in this business moving forward, and demand will continue to come through the summer.”

Those prices will likely only grow as there will be “very little incremental new capacity coming into the industry,” Nassetta said.”The laws of supply and demand, laws of economics, are alive and well,” he said.