Why Hotel Rates Spiked in February

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All of a sudden, hotel rates aren’t as cheap as they used to be. Last month, rates increased 7% in the largest year-on-year jump ever recorded.

During the recession, we were hesitant to leave the comfort of our own cities and homes to go on a true vacation. Remember the rise of the staycation? So hotels tried to lure both corporate and leisure travelers by dropping rates dramatically. But over the last couple years, they’ve gradually started rising – and now, they’re finally near pre-recessions levels.

According to data released this week by Pegasus Solutions, a tech company for the hotel industry, hotel rates jumped 7.1% for business travelers in February (compared with February 2011) and 7.3% for leisure travelers.

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“Ever since the recovery started in late 2009, occupancies crept up, but they weren’t supported by rate increases,” says Mike Kistner, chief executive at Pegasus Solutions. “We were waiting for market leaders, someone who would have the guts to step up and say, ‘My product is worth this much.’”

Those leaders have finally emerged. While Pegasus wouldn’t name specific hotels that have upped their rates lately, the group tracks North America’s major hotel groups, which presumably include Marriott, Hilton, Omni, Radisson and Holiday Inn, among others.

Corporate hotel rates are the closest to pre-recession levels and are currently about 1% to 2% lower than 2007 and 2008 rates. But leisure travel is still struggling a bit and is more than 10% lower than the 2007-08 levels, suggesting that companies are feeling better than families are about the economy.

The 7% spike for travelers in February was an all-time record, but it was also helped by the fact this year was a Leap Year, which added an extra day and helped drive booking volumes. But according to Kistner, it was still demand that largely drove the spike.

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The previous rate increase record occurred in June 2011 and January 2012, when rates rose 7% for business travelers both months. For leisure travelers, rates increased 6.4% in June 2011 as well. Pegasus doesn’t release average hotel rates, but according to STR Global, a hotel analysis firm, the average daily rate in the U.S. was $103.18 in February.

While leisure rates are growing, it’s the pick-up in corporate hotel rates that may be a real economic indicator.

“Corporate travel is strong,” says Kistner. “People are getting out there doing business, and that suggests a pick-up in the economy.”

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