• Tue. Jun 25th, 2024

US Hotel Profitability Strongest Since October 2022

Bynewsmagzines

Apr 13, 2023
Phoenix hosted Super Bowl LVII, which drove profitability performance for the market's hotels. (Getty Images)

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Hotel performance in the top 25 U.S. hotel markets has improved consistently as more business and group travel has been taking place. February occupancy and average daily rates were the strongest since October 2022, and those strong levels have also boosted improvements in total revenues and profits.

Total revenue per available room was $238 in February and gross operating profit per available room was $81, both of which were also the strongest since October 2022. All four key profitability metrics — including earnings before interest, tax, depreciation and amortization per available room and labor per available room — surpassed 2019 comparisons, which was the pattern these top markets followed last fall.

An indicator of growing business and group travel is food-and-beverage revenues, specifically catering and banquet revenues. For the top 25 markets, catering and banquet revenues on a per occupied room night basis in 2023 are $0.43 less than what they were in 2019. Accounting for inflation, the metric is $5 less than what it was in 2019. However, meeting space rentals and A/V rentals per operating room are both up when accounting for inflation — by 2% and 8%, respectively. This shows that although inflation is accounting for some of the increased food-and-beverage revenues, the rest is due to the increased demand for these services at hotels.

Labor costs, which have been an ongoing issue for hotels, continue to grow. In the top 25 markets, the cost of labor per available room was $85 in February, which is 3% higher than in February 2019. Eighteen of the top 25 markets reported labor costs per available room higher than it was in February 2019, and in the other seven markets the costs were greater than 81% of their 2019 values.

The markets that had the largest labor costs per available room index in February were Orange County, California (142%); Las Vegas, Nevada (138%); Nashville, Tennessee (138%); San Diego, California (126%); and Phoenix, Arizona (121%). The average labor costs per available room for these five markets was $111, which is $35 more than the average of all the other markets. On a per-operating-room basis, total labor costs for the top markets were $135, which is $19 more than in 2019 and spread across all departments.

While 11 top markets outperformed 2019 GOPPAR levels in February, Phoenix was the strongest performing market. Peak travel season in the market and the hosting of the Super Bowl were factors. Occupancy for this market in February was 80.4%, and ADR was $278, while total revenue per available room was more than double at $586. Even with the third highest labor costs per available room at $128, Phoenix still had strong profits with GOPPAR at $328 and GOP margins at 55.9%.

On the other end of the spectrum, markets that are still struggling to make headway with GOPPAR include Chicago, Minneapolis, Seattle, St. Louis and San Diego. All these markets achieved 56% or less of 2019 GOPPAR values.

Raquel Ortiz is director of financial performance at STR.

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