The hotel business has been a good one in recent years, as the economy has gathered strength. But there’s one area that’s been lagging — hosting corporate meeting and conferences.
Now, the hotel industry is hoping that lower corporate taxes will finally change that.
“The corporate and groups market has been sluggish and hasn’t responded as well to the economic growth,” said Lorraine Sileo, senior vice president for research at Phocuswright, a travel market research firm. “There’s definitely a lot of optimism that this is just a segment that’s waiting to improve and that gains are expected.”
Back in November, executives at both Marriott International and Hilton Worldwide expressed hope that the proposed corporate tax cuts would prompt companies to spend more at hotels. The tax bill was signed in December, and by February, when the two executives spoke with investors about their fourth-quarter earnings, they said there were indications that the tide had begun to turn.
Hilton’s chief executive, Chris Nassetta, said business travel demand was better than expected, and Marriott’s chief executive, Arne M. Sorenson, characterized the mood in corporate America post-tax reform as optimistic.
TravelClick, which analyzes booking activity at 50,000 hotels, found that growth in overall bookings grew by 1.3 percent in February and 1.5 percent in March, year over year — meaningful gains, according to that company’s senior industry analyst, John Hach.
“What we’re seeing is a consistent uptick in activity in organic growth that we hadn’t witnessed before the tax cut,” he said. For the second half of 2018, the pace of group bookings is picking up, as well as business trips over all, he said. “That was not existent prior to tax reform.”
Still, some hotel industry analysts were not so quick to say that the corporate tax cuts would result in strong growth in the corporate meeting business.
“It’s still too early to say, ‘Let’s loosen the purse strings,’” said Michael Bellisario, senior research analyst at Robert W. Baird & Company. He noted that hotels had been raising prices as demand for their rooms had increased. “C.E.O.s and C.F.O.s are saying, ‘Watch your budgets.’”
But other analysts were more optimistic, saying the full impact of the tax cuts might not be visible just yet. “It’s so fresh, we don’t have a lot to go on in terms of pure results,” said Scott Berman, United States hospitality and leisure practice leader at the accounting firm PwC. “I just think everybody’s trying to digest it.”
Indeed, Ms. Sileo, of Phocuswright, said the timeline of corporate travel budgets and contracts could be holding back some additional demand. “Budgets for meetings, for group travel and for corporate travel were set in 2017,” she said. “So the impact of the tax legislation in 2018 might not even hit until they budget for 2019.”
Once corporate hotel bookings return in strong numbers, they should have staying power, since bookings for large meetings are made months, if not years, in advance.
But some hotel industry experts were skeptical that the tax cuts should get much credit, given the overall strength of the hotel industry in the United States.
Bjorn Hanson, a professor at the Tisch Center for Hospitality at New York University, estimated that RevPAR, a common hotel industry metric that is short for “revenue per available room,” would gain only 0.3 percent this year from the tax cuts.
And Mike McCormick, executive director of the Global Business Travel Association, said, “I don’t think we have enough data to know whether this is short term, or whether this will be sustained.”
He noted a drop in international visitors, blaming a shift toward nationalism. “There are a lot of other factors at play here,” he said. “The impact that the administration’s policies have had on the group and meeting business is not a surprise for us.”
Another issue is that booking growth is running out of room — literally. “We’ve had 90-plus months of occupancy growth,” Mr. Berman, of PwC, pointed out, and hotels in big cities routinely sell out.
Hotels have been able to raise their rates in these markets, but the flip side to higher profits is the risk of dissuading future bookings, especially for large room-block commitments as the law of supply and demand kicks in. “That’s where it becomes a little tricky,” Mr. Berman said.
Even though companies will have lower effective tax rates, Steven M. Rosenthal, a senior fellow at the Urban-Brookings Tax Policy Center, said provisions in the new law curtailing deductions for business entertainment expenses could dampen any positive effect.
“What the bill gave with extra stimulus in the one hand could be pulled back a bit by limiting business expenses on the other hand,” he said. “The jury is out as to whether lower-taxed corporate profits will lead to more investments in the business, including travel and facilitating meetings and the like.”