Hotel Industry Cashes In on Rising Leisure Travel

Americans hit the road in heavy numbers during the past three months, producing higher second quarter earnings for U.S. lodging companies.

Rising leisure travel spurred by reduced airfares and a steady economy helped boost occupancy rates and room prices.

Accounting firm Coopers Lybrand estimates occupancy rates at U.S. hotels rose 2.9 percentage points to 69.6 percent, and that the average daily room rate increased 3.7 percent to $65.88.

"Low fares precipitate more travel activity, and the leisure market is inclined to spend the money they save on airfares on hotels," said Rolfe Shellenberger, an airline consultant with Runzheimer International. The American Express Index of the average airfare is down about 10 percent from a year ago.

Marriott International Inc., one of the biggest U.S. hotel companies, has gained from increased travel because it manages hotel chains in each of the luxury, mid-priced, and economy segments of the market, said Alex. Brown Sons Inc. analyst Camille Humphries. Humphries estimates Marriott International earned 43 cents a share in the second quarter, up from 36 cents a year earlier.

Earnings growth at Hilton Hotels Corp. was driven by a 5 percent increase in average daily room rates at the 230 hotels it owns, manages or franchises, said Dean Witter Reynolds Inc. analyst Joseph Coccimiglio. The company's results also improved because three new luxury suites _ which cost $40 million to build _ at the Las Vegas Hilton attracted wealthy gamblers who lost more than usual, he said. Coccimiglio estimates the company's second quarter earnings rose to 95 cents a share from 70 cents.

Promus Cos. is expected to benefit from higher room prices at its Embassy Suites, Hampton Inn and Homewood Suites lodging chains, and the company hopes to increase room prices about 5 percent this year, Coccimiglio said.

The Memphis, Tenn.-based company, which also has casino operations, has spun off its hotel business to shareholders.

La Quinta Inns Inc. of San Antonio has benefited in the last few quarters from renovations and new uniform signs at many of its properties. Analysts expect higher occupancy and increased room rates helped raise earnings to 33 cents a share from 23 cents.

Companies that own most of their hotels also did well during the quarter, because increases in room rates add very little to costs, meaning that much of the additional revenue sinks to the bottom line, Humphries said.

Prime Hospitality Corp., which owns stakes in or manages about 87 hotels, earned 13 cents a share, up from 11 cents, Humphries estimates. Revenue per room rose 4 percent to 5 percent, she said.

Analysts expect Host Marriott Corp., which owns 100 hotels, to eke out net income of 1 cent a share, compared with break-even results a year earlier. The company has been hurt by high interest and depreciation costs. Strong room and occupancy rates, however, helped boost second quarter earnings before interest, taxes, depreciation and amortization 11 percent to $110 million from $99 million, Humphries estimates.

Hospitality Franchise Systems Inc., the world's largest hotel franchisor, is expected to post an earnings gain in part because it added many new franchisees to its hotel network in the past year. As of March 31, the company had 425,186 rooms in its system, up 8.4 percent from about 392,344 a year earlier. Analysts estimate earnings rose to 36 cents a share from 28 cents.

The outlook for growth in the hotel industry's third quarter earnings is strong as well. Coopers Lybrand estimates occupancy will rise 3.1 percentage points to 74.7 percent of rooms. The firm expects average-daily room rates will rise 3.8 percent to $66.

The U.S. dollar's decline against some major foreign currencies could help results during the summer, when most foreign tourists visit the U.S., Humphries said.

Cheap U.S. vacations for Japanese, Germans and some other Europeans "could make a big difference in June, July and August," Humphries said.

Humphries added that a slowdown in new hotel construction has helped the lodging industry by maintaining a favorable balance between supply and demand.

The number of new hotel rooms opening each year dropped 68 percent to 33,461 last year from 104,000 in 1990, according to Coopers Lybrand.

The number of starts on new construction declined to 48,663 rooms last year from a peak of 160,000 in 1986.

"I think we're still benefiting from the lack of new supply," Humphries said.

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