Zacks Industry Outlook Highlights: Hyatt Hotels, Hilton Worldwide Holdings and Starwood Hotels & Resorts Worldwide

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Jul 30, 2014, 09:30 ET

CHICAGO, July 30, 2014 /PRNewswire/ -- Today, Zacks Equity Research discusses the Hotels, including Hyatt Hotels Corporation (NYSE:H-Free Report), Hilton Worldwide Holdings Inc. (NYSE:HLT-Free Report) and Starwood Hotels & Resorts Worldwide Inc. (NYSE:HOT-Free Report).

Industry: Hotels

Link: http://www.zacks.com/commentary/33674/

After a tough 2013, 2014 started on a better note for hoteliers with the economy gradually returning to health. Despite patches of economic and political uncertainty around the world, the global tourism scenario is encouraging. This trend is expected to pick up for the remaining part of 2014.

Although, the improving economic backdrop has the potential to invigorate the hotel sector, certain challenges will persist. Owners and operators are pressed to achieve profitable growth and hoteliers will try to capitalize on the improved tourism numbers. However, higher cost and expenses incurred for renovation and other digital and marketing initiatives taken by the leading hoteliers to improve traffic are hurting profits.

In spite of these headwinds, the lodging performance indicators showed year-over-year improvement. According to Smith Travel Research (STR), the leading information and data provider for the lodging industry, the average daily rate (ADR) at U.S. hotels in Jun 2014 was up 4.3% year over year. Overall occupancy was up 2.9% year over year.

Notwithstanding the common macroeconomic hurdles, the lodging sector is expected to continue to recover this year, thanks to an improving U.S. business as well as strong international travel and tourism volumes. In fact, the uptrend visible in occupancy rate, ADR as well as revenue per available room (RevPAR) for the first and second weeks of July, if it is any clue, indicates a robust 2014.

Statistics bear out this relatively favorable environment. A recent report by PricewaterhouseCoopers (PwC) shows that the lodging sector will continue to outperform in 2014 and 2015 on the back of robust booking trend and a solid travel and tourism market. The market researcher expects RevPAR growth of 6.5% in 2014, driven by increased ADR of 4.3%, better than 3.9% recorded in 2013. PwC also added that upscale and luxury segments together will be the major driver of industry growth.

Furthermore, mega sporting events in South America scheduled in the second half of 2014 through 2016 are expected to boost tourism. As owners and operators strive to enhance value and competitiveness, industry-best practices, like sustainability and brand refreshment, will remain industry priorities. The currently ended FIFA World Cup in Brazil also had a significant positive impact.

OPPORTUNITIES

Demand Exceeds Supply: The gradual recovery in the broader economy has boosted the hotel industry as demand is picking up for both leisure and transient business travel. With limited supply and strong demand, room rates are seeing an upward movement. According to Hyatt Hotels Corporation (NYSE:H-Free Report) and Hilton Worldwide Holdings Inc. (NYSE:HLT-Free Report), the supply-demand environment in the U.S. is favorable with healthy demand growth outpacing supply growth that are still below long-term averages. This would lead to rate increases, thereby driving RevPAR higher.

In fact, STR expects the sector's demand growth to be 2.6% in 2014 in the U.S. with only 1.2% increase in supply.

The North American Recovery: System-wide occupancies in North America appear to be pretty steady and above the prior peak achieved in 2006 following the gradual improvement in the economy.

With the boost in the economic sector and an improving travel and tourism industry, hotel companies are well poised for growth in the second half. North America is still the largest market for Starwood Hotels & Resorts Worldwide Inc. (NYSE:HOT-Free Report) where it plans to open about one-third of its hotels expecting 2014 to be yet another year of robust growth in the region.

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