Going Up?

In the hospitality industry, size matters. A record $24.8 billion worth of hotel mergers were consummated last year, and the new megachains raised room rates simultaneously.

Pannel Kerr Forster Consulting (PKF), a San Francisco-based hotel and hospitality consulting firm, reports that the average business travel hotel rate climbed to $105.76 last year, up 7.7 percent from the previous year.

The price hikes are not coincidental. In dense metropolitan areas like Chicago, New York City and San Francisco, the hotel mergers have definitely affected prices, says Robert Mandelbaum, research director at PKF. "The potential is there for aggressive rate growth when many hotels in one area are owned by the same company," he explains.

But it's not all bad news for business travelers. Coopers & Lybrand LLP analyst Bjorn Hanson predicts mergers will benefit business travelers by generating frequent-guest programs that allow them to earn miles at more properties.

This article was originally published in the May 1998 print edition of Entrepreneur with the headline: Going Up?.