Business travelers find hotel bills rising

Midweek hotel bargains are becoming harder to find, thanks mostly to a business-travel comeback that's flourished since last year.
Business travel has "really come back faster and stronger than any of us anticipated," says Paul Whetsell, chairman of MeriStar Hospitality, one of the nation's largest hotel real estate investment trusts.

U.S. hotel rates are rising across the board, but they're increasing at a faster clip at hotels that cater to business travelers.

The average daily rate at urban hotels rose to $115.77 in March, up 5% from a year ago, according to Smith Travel Research. Airport hotels averaged $85.05, up 7% from a year earlier.

On a full-year basis, business rates are expected to average 5% higher this year than last, says Bjorn Hanson of consulting firm PricewaterhouseCoopers. Overall, hotel rates should average 4% more this year than last, he says.

Rate increases have already driven some people out of favorite hotels. Sales executive Bob Ferretti of Oakton, Va., says he's been priced out of a Marriott in Newark, N.J., because it now charges more than his company reimburses.

Business travel plummeted after the Sept. 11 attacks as companies restricted travel, and many travelers stayed closer to home. New York, which Hanson says had the biggest loss of business travelers, started seeing them return in early 2004. The uptick later spread to cities such as Washington, Boston and San Francisco, he says.

Now, says analyst Rod Petrick of investment firm Legg Mason, "the recovery is in full swing." Rooms at full-service hotels at large coastal cities are particularly in demand, says Matthew Hart, president of Hilton Hotels. Downtown rooms at Boston, New York City, Washington and Miami are consistently sold out or close to it.

Despite a year-over-year rate increase of more than 10% in cities such as Washington and Orlando, most hotels in the USA are still charging less on average than they did before Sept. 11. But that's not the case in New York.

New York hotels are expected to set records this year for prices and occupancy rates, PricewaterhouseCoopers says. The firm projects New York's occupancy rates will top 85%, and the average daily rate will top $225.

Rates aren't jumping in every market. Whetsell recently spent three months visiting many of MeriStar's 77 upscale hotels across the USA and found lingering weakness in cities such as Detroit.

"When you go into the Upper Midwest, where they're still very reliant on the auto industry, you're seeing slower growth than you are in the rest of the country," he says.

Business travelers generally pay higher rates than other guests, so hoteliers are adjusting to take full advantage.

•Change the mix. Upscale hotels are doing less to attract price-sensitive leisure guests and lower-rate contract guests, such as airline pilots. That makes more rooms available for business travelers. Through April, for instance, rooms used by business travelers this year at Hilton hotels grew 6% from the year-ago period. Rooms for leisure travelers fell 6%.

•Limit bargains. Hotels are limiting the number of cheaper rooms available for sale on travel Web sites such as Expedia and Priceline. After Sept. 11, hotel managers were preoccupied with merely filling rooms without much regard to rates, says Andrew Jordan, Wyndham's sales vice president. No longer. Wyndham's average daily rate rose to $165.16 in the first quarter, up nearly 6% from a year earlier.

•New hotels. With revenue strengthening, new hotel projects are easier to finance. Developers will begin construction on about 98,000 new hotel rooms, or 22% more than last year, PricewaterhouseCoopers says. That's the highest level since 2000.

•Tougher negotiations. Hotel companies have the upper hand in their annual negotiations with corporate travel managers. LaSalle Hotel Properties, a REIT that owns 22 hotels, last fall won increases on corporate rates of up to 8%. This year, LaSalle CEO Jon Bortz expects steeper increases.

Source: Roger Yu and Barbara De Lollis, USA TODAY