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Pack a pillow: Hotels to cost more

Hotel stays are getting even more expensive.

Anticipating strong demand by travelers of all kinds, from business to leisure to groups, hotels across the United States have begun to push rates up this year.

Consulting firm PricewaterhouseCoopers predicts the average daily hotel rate nationwide will rise by 5.8 percent this year after an increase of 5.3 percent last year, and that in many major business travel cities, the increases will be even higher. In New York, according to a new report from the firm, the average price for a hotel room is projected to go up by 14 percent; in Miami, the figure is 9.1 percent and in Chicago, 7.6 percent.

"The only things that will slow down the rate increase would be a severe economic slowdown and a lot of new hotel supply," said Michael Rietbrock, who follows the hotel industry for Citigroup Investment Research. "There is not a lot of new supply coming."

Arriving in the wake of last year's rate hikes, the higher rates continue to make life difficult for corporate travel managers and business travel agents, who are trying to hold the line on employee travel expenses. They say business travelers are cutting the length of their business trips and looking for cheaper alternatives to their favorite lodgings.

Cindy Shumate, director of travel services for the Estee Lauder Cos., said her employer was putting its staff members up more often at limited-service hotels rather than more expensive ones. Limited-service hotels generally do not provide a restaurant or room service.

Shumate says that as rates climb, she is having "stronger conversations" in her negotiations with hotels about including amenities such as high-speed Internet access, breakfast, fitness club access and parking in Estee Lauder's corporate rates.

Bjorn Hanson, a lodging specialist at PricewaterhouseCoopers, says hotels can impose higher rates because "demand growth is strong in every category - business travelers, groups and conventions and leisure travelers, and it's strongest in major cities."

Strengthening demand is also the result, he said, of "some unwinding of constraints on business travel in the last five years."

He further attributes the rate increases to hotels' continuing investments in amenities, like nicer bedding, flat-screen televisions and high-speed, wireless Internet access. PricewaterhouseCoopers estimates that hotels in the United States spent a record $4.8-billion on these amenities last year and will spend $5-billion this year.

The consulting firm projects that the average daily rate charged by hotels in the United States will jump to a record $96.11 in 2006, from $90.84 in 2005. The projected 2006 rate also represents the second-highest percentage increase since 1985; only the 6.4 percent increase in 1996 was greater, and that was from a lower base rate.

Hanson said increases in the rates paid by business travelers will vary in the 10 cities. But during peak periods, he said, business travelers probably will pay even more than the average daily rate increases: for example, he said, some business travelers in New York may pay 30 percent more during peak times.

One reason business travelers are willing to accept the increases, Rietbrock said, is "the emergence of discounted airlines, which have made the cost of air travel a lot more affordable." That, he said, has "opened up a lot of space in the corporate travel budget, and hotels partially have filled this gap."

Major hotel chains also forecast high-single-digit increases in rates paid by business travelers this year. Hilton Hotels Corp., for example, predicts that rates paid at Hilton-owned hotels by what are called transient business travelers - executives who do not use a negotiated, corporate rate - will climb 9 to 10 percent. Marriott International says its negotiated corporate rates will rise an average of 7 to 9 percent, while transient rates will climb slightly less.

One factor contributing to chains' ability to impose increases, said Marc Grossman, Hilton's senior vice president of corporate affairs, is that "in a lot of big cities, including New York, you're seeing a shortage of first-class hotel space, with conversions of hotels into condominiums."