PwC Forecasts Record Profitability In '06, '07

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. October 14, 2008

by Stefani C. O'Connor

NEW YORK, NY, December 8, 2005. PricewaterhouseCoopers LLP has forecast that the industry will enjoy record-breaking profits over the next two years, standing in stark contrast to the recession/recovery mode lodging struggled through starting in 2001, particularly post-Sept. 11.

While the industry is on track to yield $20.8 billion in profits in 2005, profits are expected to soar to $25.2 billion in 2006, according to data released by Bjorn Hanson, global leader, advisory services/hospitality and leisure for PwC as part of the company's 10th annual U.S. Lodging Industry Report and Forecast. That figure surpasses the decade's previous record high of $22.5 billion in 2000.

Speaking at PwC's headquarters here on Madison Ave., Hanson told analysts that the 2006 figure would escalate even higher the following year, with aggregate profits expected to reach $29.7 billion in 2007, a 17.9% increase.

Similar positive performance is anticipated for the industry fundamentals.

PwC is forecasting U.S. lodging occupancy at 63% for 2005. It continues its upward climb, albeit more slowly, reaching an anticipated 64.1% in 2006, then rising again 1.1% to 64.8% in 2007.

Average daily rate for U.S. lodging is forecast to increase 5.2% in 2005 to end this year at $90.67. That figure is expected to increase 5.1%, according to PwC data, to $95.31 in 2006. In 2007, PwC shows ADR with an increase of 4.9% over the previous year, yielding an anticipated $99.97.

Nominal RevPAR will exceed the 7.8% surge seen last year, increasing 8.1%- the highest in 21 years- in '05 to $57.17. The upward trend continues at a slower rate over the next two years, yielding U.S. RevPAR of $61.06 (+6.8%) and $64.74 (+6%) in 2006 and 2007, respectively. While industry players have voiced their appreciation of the current economic robustness within the lodging arena, they've also raised concerns as to how long such positive aspects and performances can last.

Toward that, Hanson told HOTEL BUSINESS(R): "This cycle is an extraordinary cycle because we had such a loss of activity 2001-2003, that there was almost a two-year pause before what normally would have been the beginning of the cycle - it was kind of like we froze in place for two years. That will get added to the cycle. Plus the supply growth may add another year or even two to it. So this will be an especially long cycle. A little flatter is some ways, but a longer cycle as well."