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U.S. 2008 hotel revenue seen rising at slower rate

LOS ANGELES, Jan 28 (Reuters) - Revenue for U.S. hotels will keep rising in 2008, but at a slower rate than in the past couple of years as leisure travel softens and the supply of new hotel rooms increases, industry experts said on Monday.

Despite recession fears, steady demand from business travelers is expected to allow hoteliers to raise room prices by 5.2 percent this year, while occupancy slips 0.8 percent, bringing revenue per available room -- a combination of room rates and occupancy that is a benchmark of industry health -- up 4.4 percent for the year, according to a forecast from Smith Travel Research presented at a lodging industry conference in Los Angeles.

Revenue per available room, or revpar for short, rose 5.7 percent last year and 7.8 percent in 2006.

U.S. consumers are cutting back on spending and a full- blown recession would indeed crimp the business travelers that hotels have come to rely on as their best-paying customers, but Smith Travel, which tracks the lodging industry, does not forecast a recession.

Paul Brown, president of North American operations at online travel agency Expedia Inc EXPE.O, said exchange rates and trends in air fares still make the United States an appealing destination for holiday travelers from Europe and elsewhere.

“Hoteliers need to be agile and should enlist highly targeted promotional and pricing strategies to leverage current market conditions to their maximum benefit,” he said.

Another hotel watcher, PKF Hospitality Research, expects revpar for U.S. hotels to increase 4.6 percent this year and 5.6 percent in 2009 as occupancy growth kicks back in.

SUPPLY OUTPACING DEMAND

As in 2007, Smith Travel’s projected 2008 increase of 2.2 percent in the supply of hotel rooms, is expected to outpace an anticipated 1.4 percent rise in demand.

But the credit crisis of past few months has actually helped improve the fundamentals of the hospitality sector by slowing down investment in new hotels, said Michael Fishbin, hospitality and leisure practice director for consulting firm Ernst & Young.

“With the financing tap essentially turned off for a few months and underwriting terms changing dramatically, there will be less new construction in the next two to three years than originally planned,” he said in a forecast report.

But some Wall Street analysts are expecting even slower, yet still positive, revpar growth this year.

JP Morgan analyst Harry Curtis said in research note on Monday that U.S. hotel revpar rose an average 5.5 percent in the fourth quarter of 2007, but the growth rate fell to 2.8 percent in December from 8.6 percent in October.

Joe Greff at Bear Stearns recently projected U.S. revpar growth of around 3 percent this year, consisting of rate increases of 4 percent to 5 percent and occupancy declines of around 100 basis points. (Editing by Andre Grenon)

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