Reality Check

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Reality Check
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• Moderator Carol Ann Salcito, President,
  Management Alternatives, Inc.
• Presenters
• Maria Chevalier, Vice President, Hotels, BCD
  Travel
• Jan Freitag, Vice President, Smith Travel
  Research Jan Freitag, Vice President, Smith
  Travel Research
• Brad Penrith, Senior Director, National Sales,
  Carlson Hotels Worldwide

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US LODGING INDUSTRY OVERVIEW - Where are Room
Rates Going? -
Jan D. FreitagVice PresidentSMITH TRAVEL
RESEARCH
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U.S. Lodging Industry - Key StatisticsMay 2006
YTD

• Change
• Hotels 48,837 0.3
• Rooms 4.5mm 0.4
• Demand 2.7mm 2.7
• Occupancy 62.0 2.3
• A.D.R. 96.42 6.6
• RevPAR 59.79 9.0
• Room Revenue 40.0B 9.4

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Total United StatesADR Percent Change2002
2007P
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Total United StatesNominal Room Rates2000
2006P
If Yr. 2000 ADR Had Inflated at 3 over 6 years
US Hotel Rooms Are Still a Bargain
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Reality Check

• Brad Penrith
• Senior Director, National Sales, Carlson Hotels
  Worldwide

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Macroeconomics Affecting The Industry
Revenue levels will be higher in absolute terms
than in previous years (1) however, the growth
will be slower (5)
Issues Trends
Expected Outcome

• Supply growth is benign while demand is
  accelerating and changing
• Rising construction costs due to interest rates,
  availability of materials, increase competition
  for sites and the cost of land, and detrimental
  weather phenomenon like hurricanes
• Increasing energy, insurance and labor costs
• Amenity creep including Bed Wars, new
  televisions, internet, office away from office,
  co-branding and change of ownership/flags
• Demand erosion from emergence of alternatives
  like condo hotels, cruises, time shares, friends
  relatives, and experience travel
• Transportation problems stemming from airline
  industry challenges, rising fuel costs and
  lacking infrastructure in certain geographies
• Emerging global threats like pandemic illness,
  terrorism, currency fluctuations and wars

• Higher revenues
• Cap on supply growth
• Higher operating costs
• Higher operating and/or capital expenses
• Slower revenue growth
• Inhibited demand
• Any/All of the above

Source PWC Forecast, March 2006
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U.S. Lodging Industry Growth by Segment

• 2003 was the valley for most segments with a
  rebound beginning in 2004
• Midscale w/o FB RevPAR overtook Midscale w/ FB
  segment in 2002 and is projected to widen that
  lead over time to almost a 10 RevPAR
  differential by 2008
• Luxury segment is projected to grow the fastest
  over the next 3 years with a CAGR of 5.1,
  followed second by the Midscale w/o FB. The
  slowest growing segment is Midscale w/ FB, which
  is forecast to grow by only 2.9.

Projected Nominal RevPAR YOY Growth (2006-2008)
Nominal RevPAR (2001-2008)
Source STR, PWC
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Contribution of Occupancy and ADR to Yearly RevPAR
ADR will register robust growth in 2007 - 2008
and RevPAR increases will continue to be driven
by ADR
Sources PricewaterhouseCoopers LLP (2004 to
2006), Smith Travel Research (2000 to 2003)
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Reality Check

• Maria Chevalier
• Vice President, Hotels
• BCD Travel

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Global Hotel Market Predictions
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Hotel Negotiations Trends

• 50 hotels spend unmanaged
• All major chains looking for substantial rate
  increases
• Reduction in of corporate client accounts at
  individual hotels
• Qualifying room night volume thresholds raised
• Increased number of hotels declining to
  participate in RFP
• LRA is a premium rate NLRA increasingly offered
  for low volume
• Dynamic pricing introduced into 2006 season
• New Considerations
• E Folio
• Non-Smoking Chains
• Technology

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What is the Best Deal?
Strategy Observations
Benchmark
Relationships
International Leverage
Big Picture, Market Specific
Transition Agreement