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Major hotel groups are in an arms race to introduce new rooms and enter new markets in a fight for the growing number of international travelers.
Amid the relatively recent growth, several of the groups including Marriott International, Hilton Worldwide, InterContinental Hotels Group, and Starwood Hotels and Resorts reported strong earnings this week.
The substantial net room growth reported in 2014, exceeded only by the group’s six-figure pipelines, is one signal of the rebounding industry.
One reason that hotel profits are so strong is that relatively few new properties are actually being built, explains hotel consultant Robert Cole of Rockcheetah.com.
Groups are instead converting properties to another brand or acquiring a brand.
Marriott and Hilton both grew their net room volume by 6 percent in 2014, each aided by conversions and acquisitions.
Forty percent of Marriott’s growth was from conversions and the Protea acquisition. Hilton’s growth was also assisted by conversions.
IHG’s net room growth for 2014 was a little more than half, at 3.4 percent, of its competitors Marriott and Hilton, but its development pipeline is closer to the ambitious plans of those brands than Starwood’s reported plans. IHG also acquired Kimpton Hotels in December 2014. Kimpton’s rooms are not reflected in IHG’s 2014 growth numbers.
Starwood cited poor execution as the primary driver behind now-former CEO Frits van Paasschen’s abrupt departure. The hotel group added just 7,000 rooms in 2014, a total of just 2 percent.
This growth was far below the the 4 percent to 5 percent pace that Starwood forecast to stakeholders.
Van Paasschenmcited three factors for falling short during the full-year earnings call on February 10. These included longer development times in important growth markets, fewer conversions and a higher proportion of Select Serve hotels with lower average room counts.
“The combination of falling short compared to the forecast, along with falling short compared with the competition was the recipe for van Paasschen’s unceremonious departure,” says Cole.
“Wall Street rewarded the move by raising Starwood’s share price over 3% upon hearing the news. As a result, Starwood will now grow faster – which may have less to do with market demand and customer needs, and more about investor sentiment.”
The below chart outlines net room growth, the development pipeline, and total room count for the four major hotel groups:
Growth in 2014 and Future Pipeline
|Hotel Brand||Rooms Added||Net Room Growth||Development Pipeline||Total Rooms|