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U.S. Hotel Profits - Kind in 2006, Mean in 2007
2007 Trends In The Hotel Industry Report - Now Available!!

In 2006, the average hotel manager in our 71st Trends in the Hotel Industry survey achieved a 13.3 percent gain in operating profits1, the third consecutive year of bottom-line increases in excess of ten percent. Favorable supply / demand conditions allowed these operators to enjoy an 8.2 percent jump in revenues for the year. However, management continued to struggle with escalating costs. Hotel operating expenses grew 6.3 percent in 2006, the third consecutive year of expense growth nearly twice the pace of inflation.

These finding are based on the recently released 2007 edition of Trends in the Hotel Industry. To monitor lodging industry revenues, expense, and profits, PKF Consulting has collected and analyzed U.S. hotel operating statements since 1936. This year’s report is based on a sample of over 5,000 full-service, limited-service, resort, all-suite, and convention properties located throughout the nation.

Survey Results

The following paragraphs highlight the major findings from this year’s survey:

Revenue
• An 8.3 percent gain in average daily room rates was the main driver of the 8.2 percent increase in total revenue. Concurrently, occupancy rose just 0.4 percent. The net result was an 8.8 percent gain in rooms revenue, or RevPAR.
• Food and beverage revenues grew 7.1 percent, while sales in other operated departments (gift shop, golf, spa, movies, parking etc...) increased 5.9 percent.
• On the negative side, telecommunications revenue declined (-5.5 percent) for the sixth consecutive year.

Expenses
• Measured on a percentage basis, the two expense items that increased the most from 2005 to 2006 were management fees (10.0 percent) and franchise fees (9.5 percent). Since these fees are typically charged as a percentage of revenue, the sharp increases were attributable to the strong gain in revenue.
• Utility (7.3 percent) and insurance costs (9.5 percent) are two expense items over which management has limited control that grew significantly in 2006.
• For the year, hotel labor costs increased a relatively modest 4.8 percent. However, what continues to concern management is the fact that the growth in labor costs was driven primarily by the increase in employee benefits.

Profits
• With revenue expanding at a greater pace than expenses, hotel operating profits increased 13.3 percent in 2006.
• Full-service (15.9 percent) and all-suite (15.2 percent) hotels achieved the greatest gains in profits among the five property categories covered in our survey. Limited-service and convention hotels saw their bottom-lines’ surge by 10.8 percent, while resorts achieved a profit increase of 9.6 percent.
• In real terms, 2006 unit level hotel profits were 20.9 percent behind those achieved in 2000.

Moderation In The Future

In the July 2006 issue of Lodging magazine, PKF Hospitality Research forecast revenue growth of 7.6 percent for 2006, along with a 14.9 percent gain in profitability - pretty close to the results that were actually achieved. Looking towards the end of 2007, our forecast calls for a 4.7 percent increase in revenues and a 6.5 percent boost in profits. For reference purposes, the long-term (1960 to 2006) average annual change in revenue is 4.5 percent and 4.7 percent for profits. As history has proven, the lodging industry is cyclical and performance will eventually revert to the mean.

1Income before deductions for capital reserve, rent, interest, income taxes, depreciation, and amortization.

To view the full results of the 2007 Trends in the Hotel Industry survey, you can purchase a copy of the report from our web store at www.pkfc.com. Alternatively, call Claude Vargo or Josh Malnight at (866) 842-8754. 

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Contact:

Robert Mandelbaum
Director of Research Information Services
PKF Hospitality Research
3475 Lenox Road, Suite 720
Atlanta, GA 30326
Phone: (404) 842-1150, ext 223
Fax: (404) 842-1165
E-Mail: robert.mandelbaum@pkfc.com
www.pkfc.com

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Also See: Budgeting For 2007? Hotel Revenues, Expenses, and Profits All Up / PKF / July 2006
Budgeting For 2007? Hotel Rooms Will Be Easier, But Not Easy, To Find / PKF / July 2006
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