Analyst Interview: Hilton, Starwood and Marriott

4th Jul 2006 releases the latest analyst interview with Director of Equity Research Matt Quinn, who discusses Hilton, Starwood and Marriott. What is new with the hotel companies since the last quarter or so?

The three largest hotel companies in our coverage - Hilton Hotels Corporation, Starwood Hotels & Resorts and Marriott International - all continue to expect revenue per available room (REVPAR) growth in North America to be between 8% and 10% in 2006.

We believe about three-quarters of REVPAR growth in 2006 will come as a result of higher pricing. This outlook is supported by data compiled by Smith Travel Research, which shows that REVPAR increased by approximately 9% through the first quarter of the year and 10% in May 2006 versus May 2005. Through the first quarter of 2006, higher average daily rates (ADR) accounted for about 74% of the growth in REVPAR.

Are there any updates you can give us on expansion and marketing plans by the major hotel chains?

As far as expansion is concerned, Hilton has the largest development pipeline by far, with 700 hotels featuring 100,000 rooms and suites (21% growth). This follows the close of its acquisition of Hilton Group, plc in the first quarter of 2006. The company continues to experience strong conversion-related demand for its full service Doubletree and Hilton brands, and franchise development demand for its Hampton Inn and Hilton Garden Inn limited-service brands.


In particular, Hampton Inn has significant momentum at present. Hampton’s growth has accelerated over the past few years as the company has established a national footprint for the limited-service, moderately priced hotel chain. Hilton has spent considerable time and effort to reinvent the brand, including its ‘Make it Hampton’ initiative, which had begun in 2004. Over the past few years, Hampton has introduced new products and services, including hot breakfasts, new bedding and high-speed Internet.

We expect the company to develop in excess of 100 Hampton properties annually over the next two years as the brand further penetrates urban markets and the western U.S. and expands internationally. This compares with the roughly 40 franchised Hilton Garden Inn properties the company adds to its portfolio annually. We note that both brands have won the JD Power award for ‘Highest Customer Satisfaction’ within their respective categories for multiple years running, which enhances value for existing and potential franchisees.


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