ATLANTA, GA, May 14, 2009 – The good news is that when faced with lower levels of business in 2008, U.S. hotel managers cut operating costs by 0.3 percent.
“Forecasts of a double-digit decline in rooms revenue per available room (RevPAR) during 2009 are troubling enough.
Each year PKF-HR collects financial statements from thousands of hotel owners and operators across the U.S. for its annual Trends® in the Hotel Industry report.
Total revenue for the average property that participated in the 2009 Trends® survey declined 1.3 percent from 2007 to 2008. The main driver for the decline in revenues was the 1.8 percent drop off in average daily rate (ADR). Not only did rooms revenue decline 1.0 percent, but food and beverage revenue fell off 3.0 percent as well.
“As we have seen during past industry recessions, U.S. hotel managers responded to falling revenues by cutting costs 0.3 percent,” Woodworth noted. “When reviewing the changes in departmental costs from 2007 to 2008, it becomes clear that the nature of the expenses within each department determined the direction and magnitude of change.”
Expenses within departments for which management has the greatest control either declined in 2008, or grew at less than the pace of inflation.
Profits in 2008
With total revenue off 1.3 percent and expenses cut just 0.3 percent, the typical hotel in the Trends® survey suffered a 3.8 percent decline in net operating income. Except for convention hotels, all property types experienced a decrease in NOI.
Resort hotels reported the greatest decline in NOI (-11.3 percent) for 2008 followed by full-service properties (-5.1 percent) and suite hotels with food and beverage (-2.7 percent).
The exception to the national trend was convention hotels. Properties in this category enjoyed a 3.2 percent growth in profits from 2007 to 2008, largely attributed to a relatively strong 3.0 percent gain in ADR. “It appears that contracted group rates negotiated prior to 2008 helped to offset the discounting that occurred during the fourth quarter of the year,” Woodworth noted.
“While hotel managers faced challenging market conditions in 2008, the magnitude of the declines in revenue do not match the severity of the fall off in performance forecast for 2009,” said Woodworth.
In PKF-HR’s 2001 Trends® survey, properties with RevPAR declines between 14 and 17 percent saw their profits fall off 24 to 31 percent from the prior year. As of May 2009, PKF-HR is forecasting a RevPAR decline in excess of 15 percent for the entire year.
“This downside benchmarking exercise provides some interesting insights as to the direction of U.S. hotel profits in 2009,” Woodworth said. “Given the inevitable decline in revenue for most properties, the focus once again will be on cost containment.
To purchase a copy of the 2009 Trends® in the Hotel Industry report and receive a complimentary copy of PKF-HR’s Downside Benchmarker tool, please visit www.pkfc.com/buyannualtrends.
PKF Hospitality Research (PKF-HR), headquartered in Atlanta, is the research affiliate of PKF Consulting, a consulting and real estate firm specializing in the hospitality industry.