Costs at Highest in 15 Years
|Atlanta, May 9, 2005: The typical U.S. hotel spent 6.3 percent more
in labor costs during 2004, compared to 2003, according to the recently
released 2005 edition of Trends in the Hotel Industry published by PKF
Hospitality Research (PKF-HR), an affiliate of PKF Consulting. Leading
the substantial jump was an 8.9 percent increase in benefits costs. Combined
with a 7.7 percent increase in 2003, it is the highest two-year growth
in benefit costs since 1988-1989.
Climbing out of the 2001 to 2003 lodging industry recession, hotel revenues grew 7.6 percent in 2004. The increased business volume has allowed hotel managers to re-hire workers and reinstate services and amenities, both of which require increased staffing.
“In the hospitality industry, labor is not just a necessary operating component. It is an integral part of the product,” said R. Mark Woodworth, executive managing director of Atlanta-based PKF-HR. “The interaction between hotel guests and employees has a dramatic impact on the customer experience and the success of the business operation. Therefore, better hotel managers pay close attention to human resources.”
Labor costs is just one of 28 different in-depth analyses found in the just- released 2005 Trends in the Hotel Industry report, marking the 69 th annual review of U.S. hotel operations conducted by PKF. This year’s sample draws upon year-end 2004 financial statements received from more than 5,000 hotels across the country.
A Variable Expense
At 45.9 percent of all operating expenses, labor and related costs continue to represent the largest expense item for hotels. Therefore, during the recession, with revenues falling, this was one area where cost controls had to be implemented. “In general, hotel managers do not like to reduce staffing because that could have a negative impact on guest service. Therefore, managers will cut payroll only to an amount commensurate with the lost revenue,” Woodworth observed. “Historical payroll data provides a look at the careful balancing act executed by hotel management. Over the long term, labor costs have consistently run very close to 34 percent of total revenue. In 2004, labor costs were 34.4 percent of total revenue. If this trend persists hoteliers will find increasing pressure on their profit margins.”
Given the increases observed in business activity throughout hotels (rooms occupied, restaurant patrons, banquet and meeting attendees) more employees are required to service the needs of the rising number of guests. “With the improvement in the economy, not only will it be increasingly difficult for hotel managers to find qualified employees, but there will be upward pressure on wage rates and salaries as well,” Woodworth noted.
Government statistics also show that employee productivity gains are starting to wane after years of growth. This trend is particularly acute in the hotel industry where most operating functions are manually executed, not automated.
Historically, hotels have not enjoyed the productivity enhancements achieved by other industries due to automation. The lack of productivity enhancements, combined with the relatively high degree of variable staffing requirements, has resulted in historical changes in lodging industry payrolls that have differed dramatically from those of other industries.
Employee Benefits On The Rise
There are two components to hotel labor costs: salaries and wages, and
employee benefits. Employee benefits include items such as payroll taxes,
payroll-related insurance, subsidized employee insurances and meals, and
retirement plans. “The salaries and wages paid directly to hotel employees
went up 5.5 percent in 2004. However, it is the 8.9 percent increase in
employee benefits that concerns hotel owners and operators,” Woodworth
said. “Hotel managers struggle to balance the desire to offer their employees
benefits like health insurance and 401 K matching, with the cost of providing
such benefits. In addition, some benefits are government mandated, with
little room for management control.”
Source: PKF Hospitality Research
In the past two years, employee benefits have increased a total of 16.6 percent.
This is the greatest two-year increase for this expense item since the 25.2 percent growth rate observed back in 1988 – 1989.
Copies of the 2005 Trends in the Hotel Industry report, which provides owners, investors, property managers, asset managers and others with detailed information on all aspects of hotel, revenues, operating costs and profits, are available at PKF’s online store at www.pkfc.com, or by calling Claude Vargo toll free at (866) 842-8754.
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. PKF Consulting has offices in New York, Philadelphia, Washington DC, Atlanta, Indianapolis, Houston, Dallas, Los Angeles, and San Francisco.
R. Mark Woodworth
|Also See:||Hotel Guests Not Picking Up the Phone / Robert Mandelbaum / April 2005|
|Are Hotel Employee Benefits Really Soaring? / Gregory J. Miller and Robert Mandelbaum / March 2005|
|Plying the Per Diems: How Market Forecasts Should Impact Hotel Rate Strategy / Gregory J Miller / PKF / February 2005|
|Double-Digit Profit Growth for U.S. Hotels in 2004 and 2005; Strong Revenue Growth Overcomes Some Expense Concerns / PKF / February 2005|
|Hotel Construction Signs Along the Road to Recovery; Measuring Hotel Developer Intent / R. Mark Woodworth and Robert Mandelbaum / January 2005|
|Understanding the Recovery Occurring in the Meeting’s Market; Surveying the Meeting Planners / Robert Mandelbaum / December 2004|
|First Half 2004 Hotel Profits Solidify 2005 Outlook; Industry Still Lags Far Behind its Past Peak Performance in 1998 / HRG & PKF Consulting / December 2004|
|Room Rates Across the Top 50 Hotel Markets in the U.S. Will Increase by 3.7% in 2004; Five Highest and Five Lowest Average Daily Room Rate Hotel Markets in 2005 / December 2004|
|Perspectives on the Road to Recovery - U.S. Lodging Industry 2005 / HRG & PKF Consulting / November 2004|
|Other Revenue Is Good Revenue / Robert Mandelbaum / November 2004|
|Uncanny! Hotel Occupancies “Key Indicator” of Presidential Election Outcome / October 2004|
|Is the Hotel Industry Smart Enough to Avoid Overbuilding; Ten Reasons Why Real Estate Markets Become Overbuilt / Jack B. Corgel / July 2004|
|PKF Consulting/HRG Survey Forecasts Banner Year for Hotel Transactions; Investors Favoring the Full-service Segment / May 2004|
|First Uptick for Hotel Industry in Three Years; Full-Service Hotels Lead the Way In U.S. Hotel Profits for 2004 / Hospitality Research Group / March 2004|
|Demand in the Full-service Hotel Sector is Expected to Increase by 6.3% in 2004; Best and Worst Hotel Markets in Terms of RevPAR Growth / PKF Consulting / January 2004|