Hotel companies reported relatively strong second-quarter earnings, as increases in average daily rates and continued traveler demand against stagnant supply growth underpinned revenues, which may signal tougher negotiations for travel buyers once the bargaining season gets fully underway later this fall. One hotel company accounted for lower-than-expected earnings with higher operating expenses and recent renovation costs, which pared otherwise healthy revenues.

On the same day Wyndham Worldwide announced its spin-off from Cendant Corp. as a pure-play hospitality company, Hilton announced second-quarter profits slipped $58 million, compared with the same period last year, to $144 million. Hilton attributed the decrease to rising insurance and energy costs and renovations in three of its majority-owned properties, including Manhattan's Waldorf-Astoria and the Hilton Hawaiian Village. "Costs are inflating," said Deutsche Bank analyst Bill Lerner.

Hilton's second-quarter revenue per available room in owned hotels worldwide did grow by 9.3 percent, and the company expects full-year RevPAR growth to be between 9 percent and 10 percent. "Continued strong demand trends and pricing power resulted in high single-digit or double-digit average daily rate increases at many of the company's gateway hotels around the world," the company said. "Business transient and group segments each showed significant ADR improvement." Added Bollenbach: "We are in markets where supply is simply not a concern. Even with the various upsets in the market, I just don't see a big impact on us going forward."

In agreement with Bollenbach was Steve Rushmore, president and founder of HVS International, a global hospitality consulting organization. While operating costs may be escalating, increased room rates are absorbing much of the hotels heightening costs; and while operating costs are going up, they are unlikely a cause for hoteliers to raise rates. "Hoteliers do not raise rates to cover rising operating costs," Rushmore said. "They raise rates when they think the market will enable them to do that—it is the capitalistic way. With supply increasing slower than demand and high occupancies raising room rates, it's fairly easy. Operating expenses are rising, but room rates are increasing even faster. I don't know of any hotelier that is upset with the state of the U.S. lodging industry."

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