Don't hold your breath if you believe hotel rate inflation is a thing of the past as we move into the fall.
However, given the current state of the economy and other factors, industry experts warn hotels against making assumptions about the room rates they might be able to charge in the second half of this year.
According to Marriott's booking website, an AC Hotel near Boston College's campus is asking nearly $500 per night on particular weekends this fall. AC Hotels are a typically inexpensive select-service Marriott International brand.
According to the Graduate reservation system, a weekend in October at the Graduate Hotel in Oxford, Mississippi, costs more than $800 a night.
And for this one, you might want to get comfortable:
A TownePlace Suites, another typically cost-effective Marriott brand, managed to charge $1,500 per night for some rooms over a football weekend in one American college town, according to CoStar News.
And it's not just in college areas.
On some weekends, The W Nashville is charging upwards of $500 per night, and it's not unheard of to see names like Hilton Garden Inn in New York City charging over $400 per night.
Depending on who you talk to, those charges might even go up.
In spite of the fact that U.S. inflationary data shows hotel rates are no longer a primary driver of inflation, executives at the main hotel parent firms believe they will still be able to set prices by the end of 2022.
Consumer Price Index statistics on hotel rate inflation from early August indicated that rates were only 1.3% higher than they were a year earlier, as opposed to earlier this year when rate increases exceeded 20% for many months.
After the epidemic, demand generators like business and group travel have failed to fully recover.
Additionally, less travel restrictions and a growing belief that coronavirus should be treated like an endemic, similar to the common cold or flu, might cause a boom in these two industries in the fall and raise the rate, according to theory.
On an investor call last month, Marriott's chief financial officer Leeny Oberg stated, "As we think about the future, it has been quite encouraging to see the strength of group and the strength of group [room] rate.
"So, as we consider all of the potential outcomes for the economy over the next couple of years, that strengthening group's [performance] is extremely positive."
Apparently in agreement is the CEO of Marriott's main rival.
Hilton CEO Christopher Nassetta stated in a corporate earnings call in July that when considering the group side, "we don't expect in the second half of the year we'll go all the way back to where we were in 2019, but we're going to get darn close."
A recessionary wake-up call
Since there is still unmet demand for travel, the majority of hotel CEOs and chief financial officers during earnings season discounted the idea that inflation and any prospective recession would hinder the tourism industry's recovery.
Numerous research have been conducted to support these statements and demonstrate that maintaining a vacation is more important to people than other sorts of discretionary spending.
According to weekly performance data from industry provider STR, U.S. hotels performed better than pre-pandemic levels all summer long and are still doing so as we enter the fall.
But rather than hotels being fully booked, these performance gains essentially depend on the capacity to charge higher fees.
For instance, midscale and economy segment occupancy was down from 2021 last week, but rates were 5% higher, indicating stable performance in the economic segment of hotels and a 5% rise for mid scale properties.
For those tourists who are more financially fragile, such rate increases can come to a dead end.
"During the pandemic, people were stranded at home and saved money.
After that, they went on a spending binge, buying vengeance vacation and other things, according to Edouard Schwob, executive vice president of JLL Hotels & Hospitality's asset management business.
"I'm getting hammered by [high] energy costs and being hit by all those rises in cost everywhere," is the new reality.
Uncertainty in the economy and rising costs will unavoidably be a hindrance for some hotel kinds.
He continued, "There's a little bit more sensitivity."
"[People] are] keeping a closer eye on their own expenditures and have less discretionary money to spend on things like entertainment and tourism."
The rate limit does exist
Analysts are being more cautious in predicting where rates might rise further and where the pricing power runway may come to an end.
Despite the fact that the group and business travel industries may be poised for a rebound this fall, major corporations often have rates for the year that are significantly lower than what hotels were able to charge leisure travelers during the pandemic.
If the industry can attract more business passengers in the upcoming months, this will limit rate growth to some extent.
According to Jan Freitag, national director of hospitality analytics at CoStar, "we have seen amazing pricing power driven by the leisure traveler, but once school starts and people stay at home and just take weekend vacations, we will likely continue to see good hotel prices on the weekends."
However, "this is now going to be balanced out by corporate patterns in travel and by the corporate group traveler, who typically have not paid the highest available rate but always a percentage off that."
The decline in leisure travel results in a greater reliance on industries that typically travel in the middle of the week and pay less, especially as school is back in session and many businesses adopt a hybrid work model that requires employees to be in the office at least two or three days per week.
Given the endurance of demand during the epidemic, Hilton's Nassetta was the most outspoken about how the company was pursuing additional business from travelers linked with small- and medium-sized enterprises, ones who generally don't have the special corporate rates like a major consulting firm.
However, according to analysts contacted for this story, it was still too early to tell whether or not that tactic would succeed in raising rates.
That would also account for the increased weekend rates this fall at the hotels previously mentioned:
Charge the kinds of tourists who demonstrate a willingness to pay a significant amount for lodging.
But with so much economic ambiguity and disagreement over whether the United States is experiencing a recession, try not to lose your mind.
There is still some price power, but there are several factors at play, according to Schwob.
"Some individuals begin to become priced out.
However, I'm starting to notice some lesser categories — some three- and four-star properties — that really start to struggle with the concept of raising the rate forever. There is less sensitivity with the luxury market, where we are still seeing these very high pricing.
Basically: TownePlace Suites, take advantage of that $1,500 rate on college game day while you can.
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