Hotel Groups Rebalance Portfolios to Shift Upmarket for Pricing Power

Last fall, bearish commentators had worried that inflationary pressures would lead to rising costs and weakened demand, softening hotel group performance by now. None of that has materialized yet, as underscored by hotel group performance in the first quarter.

From when inflation spiked in 2022 and the first quarter of 2023, the U.S. hotel industry’s average daily rate outpaced inflation comfortably.

• In the first quarter, average daily rate growth in the U.S. exceeded inflation growth by 4.3 percentage points, said JLL’s Americas Hotels Research team.
• Robust leisure demand and group and corporate travel resurgence were critical supports.
• The behavior fits a pattern. U.S. hotels have seen average daily rate growth of about 55 basis points above inflation annually between 1988 and 2022. 

Marriott’s pricing power was a bit weaker than the overall U.S. average.

• Marriott International reported in the U.S. an average daily rate of $181. In today’s dollars, that was 12 percent above the comparable pre-pandemic period. But in real, inflation-adjusted dollars, the company’s rates didn’t quite keep pace with inflation.
• “On average daily rates, Marriott executives noted that its inflation-adjusted pricing for non-luxury is below 2019 levels, giving it some comfort on the sustainability of currently strong industry pricing levels,” wrote Joseph Greff and the analyst team at JP Morgan’s Research team in a pre-earnings call note that echoed what was the company reported for first quarter results.

One trend that could help the hotel groups long-term is rebalancing their portfolios to have more hotels that command higher rates. Many hotel groups are trying to adjust their portfolio mix to have a great share of luxury and lifestyle properties.

• Hyatt said it had increased its mix of luxury, lifestyle, and resort rooms to 44 percent of its portfolio in 2022 versus 32 percent in 2017. Hyatt’s announced acquisition of Mr & Mrs Smith, a booking platform for upscale hotels, will expand its boutique offerings on its website and app.
• Marriott, which already has nearly 500 luxury hotels and resorts, has more than 200 luxury properties in the development pipeline, with roughly 35 new hotels set to open this year.
• IHG said in May that luxury and lifestyle hotels represent 13 percent of its system and 20 percent of its pipeline. Six Senses has more than doubled its pipeline in the four years since IHG acquired it. InterContinental, with more than 200 luxury hotels open today, has a further 90 in the works. Hotel Indigo is expected to grow to 200 hotels, doubling its system in half the time it took to open the first 100 properties.

Between pricing strength and a shift upmarket, hotel groups are positioning themselves for medium-term resilience. See Skift’s first-quarter hotel earnings coverage here for more examples.

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