Trends in the Hotel
Industry
Northern California August 2003 |
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of the Post 9/11 Period . Northern California Monthly Trends Eight Months Ended August, 2003 |
October 2003 - We announced several months ago that the average U.S.hotel
suffered a second consecutive year of declining profits in 2002. According
to the 2003 edition of Trends in the Hotel Industry-USA , published by
PKF Consulting the operating profit for the average U.S.hotel dropped 9.6%
in 2002, this after a 19.4%decline in profits in 2001.
Most parties in the lodging industry believe that the second half of 2001 will be remembered as one of the lowest of low points in terms of poor financial performance. We thought an analysis of the second-half results of this past year would shed some light on this view. We saw it as a natural follow-up to the work we conducted last summer on the first six months of 2002. Our research reveals some interesting findings. The first anniversary of the events of September 11, combined with the impending war in Iraq, led to an abysmal 0.9%increase in RevPAR for those hotels in our sample. Occupancy declined by 0.3% in the last half of 2002 as compared to the same period in 2001. ADR �s increased by 1.2% for the same period. Operating expenses at the average hotel in the sample increased by 3.8% during last half of 2002, which was somewhat surprising,given that occupancies actually declined for the period.The culprit was in the Rooms Department, where expenses increased by 3.0%,over three times the increase in room Sales for these same six months. The profitability in the Food and Beverage Department basically remained unchanged. Not surprisingly, Telecommunications Revenues once again declined (down 29.5%). Profits in this category continue to erode as Telecommunications Costs only declined by 9.2%. Managers did a good job in controlling Administrative and General Expenses, which increased by just 0.5%. Marketing Expenses increased by 1.3%, which we attribute to the anticipated recovery that was expected in early 2003. The expense category that experienced the largest increase was Repairs and Maintenance, which grew by 7.7% during the period. Anecdotally,it appears that many activities that were postponed in late 2001 and in early 2002 were dealt with in the latter half of the year. Variations by Property Type The full-service hotels in the PKF sample averaged a RevPAR of $65.48 during the second half of 2002 compared to $63.52 in the second half of 2001. This represents an increase of 3.1%. With rooms revenue comprising 65.6% of total revenue at these full-service hotels, the increase in total hotel revenues was 3.3% during this same period. Thus,all other revenues increased only slightly. Operating department expenses at the average full-service hotel in our sample increased by 5.4% during last half of 2002,well in excess of the 1.0% increase in occupancy for the period. Rooms Department expenses actually increased by 6.0%, Indicating that managers may have been reacting to the need for improved guest services as well as to the desire to reduce stress among frontline employees. Telecommunications revenues declined by 17.0% for the period, while departmental expenses declined by only 3.4%. It appears that full-service managers need to effect better-cost management practices in this area. Total undistributed expenses among the full-service hotels in our sample increased by 6.0%, not quite twice the increase in total revenues for the period. All of the increases were either in Property Operations and Maintenance (up 8.2%) or Energy (up 2.4%). While the higher occupancy during the period would be expected to increase Energy costs, it was a deferral of projects from late 2001 and early 2002 that resulted in the increase in maintenance related expenses. The limited-service hotels in the PKF sample averaged a RevPAR of $36.19 during the second half of 2002,compared to $37.13 in the second half of 2001. This represents a decrease of 2.5%. Most of this was in occupancy, where performance levels declined by 1.6%.ADR �s declined by 0.9% for the period. Operating department expenses at the average limited-service hotel in the sample declined by 3.5% during last half of 2002,well in excess of the 1.6% decrease in occupancy for the period.Rooms Department expenses comprised the majority of these savings, where costs declined by 2.8%. Managers did an excellent job of controlling costs in this area. Telecommunications revenues declined by an astounding 59.0%for the period,while costs declined by only 20.7%. We suspect that much of the decline in occupancy realized during the period was the loss of full-service customers returning to their accustomed full-service digs after temporarily trading down to limited-service accommodations during the bleak post 9/11 period.Their greater propensity for Telecommunications service would explain this variance. Total undistributed expenses among the limited-service hotels in our sample increased by 4.4%,which was noteworthy in view of the 2.2% decline in revenues realized during the period.Surprisingly,the only category to experience a decrease was Energy (down 1.0%).Significant increases were realized in Administrative and General (+7.2%), Marketing (+5.5%) and Property Operations and Maintenance (+6.8%). The net effect was that profits in full-service hotels were 2.3%lower
in the second half of 2002 as compared to the last half of 2001, while
profits in limited-service properties declined by 5.7%.
Northern California Monthly Trends Month of August, 2003 Northern California Monthly Trends Eight Months Ended August, 2003 Statistics and Trends of Hotel Motel Business
Statistics and Trends of Hotel Motel Business
TRENDS is compiled and produced by PKF Consulting. Readers are advised
that
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Contact:
PKF Consulting 425 California Street Suite 1650 San Francisco,CA 94104 Telephone (415) 421-5378 Telefax (415) 956-7708 http://www.pkfonline.com |
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Also See: | Trends in the Hotel Industry / Northern California May 2003 / PKF Consulting / July 2003 |
Hotel Benchmarking Revisited; Bottom-Line Comparisons Among Similar Properties Are the 'Bottom Line' / May 2003 |