Hotel industry thriving

Marketplace Staff Jun 5, 2006

KAI RYSSDAL: You’ll be paying more for airline tickets. And it’s the same story once you get where you’re going. A study today out today predicts the hotel industry will rake in record profits this year. Marketplace Business Editor Cheryl Glaser looks at what’s driving the boom.

CHERYL GLASER: The study was done by the folks at Smith Travel Research. They say profits in the US hotel industry could add up to almost $26 billion this year.

That’s because, after a post 9-11 slowdown, business travelers are once again packing their bags and hittin’ the road.

Case in point: Jan Freitag of Smith Travel is in New York this week for a conference. So how much is he paying for that cushy suite overlooking Times Square?

JAN FREITAG: Umm, you know what? I didn’t even check because I’m a business traveler, and I have somebody else make my arrangements. I just say, “Hey, I have to be in New York on this and this date,” and it’s just the cost of doing business.

That kinda demand for rooms is outstripping supply. So many hotels have boosted their rates. But how about leisure travelers? They don’t have expense accounts. Will higher room rates and higher prices at the pump keep them home this summer?

FREITAG: One school of thought is to say, “No, you will just trade down.” You may not stay at the Hilton, you may stay at the Courtyard. Or you may not eat at the TGI Friday’s, you may eat at the Wendy’s.

Those higher energy prices are also making it more expensive to heat and cool hotel rooms. But Standard & Poors analyst Tom Graves says, so far, most hotels seem to be taking that in stride:

TOM GRAVES: Hotels, I’m sure, are spending more on fuel than they have in recent years. Nevertheless, they’re able to raise room rates enough and still have good enough occupancy so that they’re able to absorb these higher fuel costs pretty decently.

A bigger problem may be hotel labor contracts that come up for renewal this year in cities like New York and Honolulu.

Union workers say they wanna a bigger share of those record profits hotels have been making.

I’m Cheryl Glaser for Marketplace.

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