Phones, Cars, and Movies -
the Other Revenues
|by Patrick Quek, November 2001
In 2001, with most hotels fighting declines in occupancy, revenues from sources other than the rental of guest rooms or food and beverage service are getting more scrutiny. Historically, the combined revenues from the rooms and food and beverage departments have ranged from 90 to 95 percent of the total revenue for the average hotel in the United States. Therefore, the revenues from other sources received little attention.
In 2000, the revenue generated from a hotelís Other Revenue sources (everything except Rooms and Food and Beverage) averaged 7.7 percent of the total revenue for the typical hotel in our annual Trends in the Hotel Industry survey. While the combined revenues from these departments increased 5.8 percent from 1999 to 2000, the net profits generated from these sources (after deducting their respective direct operating costs) grew 7.4 percent.
To gain a better understanding of these ďotherĒ sources of revenue and their importance to hotels in the U.S., we analyzed information from the 3,200 financial statements contained in our firmís Trends in the Hotel Industry database. Because every hotel does not offer the same services, our examination of each revenue source was based solely on information from those hotels that reported income from that specific source. For example, our analysis of retail revenue was conducted only on those hotels that operate their own retail operations.
The following paragraphs summarize our observations of select Other Revenues.
For those hotels that operate one or more golf courses, the contribution of revenue from this source can equal that of the beverage department, and surpass income from guest use of the telephones. Obviously, most golf courses are found at resort hotels. However, some full-service and convention hotels also run golf operations.
For hotels with a golf course, golf revenue averaged 7.7 percent of total hotel revenue in 2000. This equates to $30.02 per occupied room. Of note is the fact that golf revenue actually declined for these hotels from 1999 to 2000. This is the only Other Revenue source analyzed that did show a decline during this period.
Telecommunications revenue for our sample of hotels grew 1.7 percent during 2000. This growth rate is 6.0 percentage points less than the 7.7 percent growth rate for total hotel revenues.
Telecommunications revenue is derived from guest use of telephones, faxes, and internet connection services. While hotels have benefited from a 13.3 percent increase in fax and internet connection revenues, telephone revenue has been virtually flat, showing only a minimal 1.3 percent increase. In fact, telephone revenue at limited-service and all-suite hotels actually declined from 1999 to 2000.
The increased use of portable technology can account for these divergent income trends within the telecommunications department. The increased use of cell phones can be cited as the cause for the stagnation in telephone revenues. On the other hand, more travelers are using laptop computers and the hotelsí fax machines while on the road.
This source of revenue is derived from the sale of goods in retail outlets that are operated by the hotel, as opposed to stores that are leased to an outside party (see commercial leases). Retail operations can be as limited as a small newsstand, or as extensive as a complete shopping arcade.
For our entire survey sample, retail revenue averaged 1.3 percent of total revenue, or $791 per available room. As would be expected, these measurements vary significantly among the different types of hotels. At resort hotels, where retail outlets can consist of stores that sell high-priced clothing and sporting goods, retail revenue was 2.5 percent of revenue, or $2,374 per available room. On the other end of the spectrum, limited-service hotels may offer their guests a small selection of toiletries, snacks, or newspapers sold over the front desk. At limited-service hotels, retail revenues averaged $97.91 per available room, or 0.5 percent of revenue.
Several all-suite hotels, especially extended-stay properties, offer their guests a small pantry of food and beverage items that can be prepared and/or consumed in their suites. However, it still appears that sales from these pantries are somewhat limited. Retail sales for our sample of all-suite hotels averaged only 0.3 percent of total revenue, or 49 cents per occupied room.
Health Club / Spa
While most hotels offer some degree of exercise equipment for complimentary guest use, other hotels either charge their guests or open up their facilities and sell memberships to the local community. For our entire sample of hotels, health club / spa revenue represented 1.7 percent of total revenue, or $1,527 per available room.
Like golf revenue, the most significant health club operations are found at resort hotels. In fact, a number of these operations can be truly classified as spas. For the resort hotels in our sample, health club / spa revenue represented 4.1 percent of total revenue or $4,148 per available room. Of more significance is the fact that health club / spa revenue at resort hotels grew a very healthy 25.6 percent from 1999 to 2000. This is consistent with the growth in popularity of these pampering getaways.
Public Room Rental
Public room rental revenues are the fees collected in the food and beverage department for the rental of banquet and meeting rooms. Historically, public room rental fees were frequently waived if the hotel received enough income from guest room rentals, or food and beverage service. However, like all other negotiations with local or out-of-town groups, it appears that catering sales staffs have become more aggressive in collecting rental fees.
Public room rental revenues grew 9.6 percent from 1999 to 2000 and now average $893 per available room, or 1.6 percent of a hotelís total revenue. As would be expected, public room rental revenue, measured on a per-available-room basis, was greatest at full-service ($1,002) and convention ($886) hotels.
Conversely, resort hotels averaged only $342 per available room in public room rental revenue. During the 1990s, meetings and conventions became an increasing source of business for resort hotels. However, it appears that resort properties still find it necessary to waive meeting room charges in order to induce groups to their location. In addition, resort hotels are frequently located in remote locations that lack the residential and commercial base needed to generate local meeting and banquet demand.
When the lodging industry finds itself in one of its inevitable down
periods, any potential source of income needs to be maximized. While
they are not the biggest sources of income, some Other Revenue sources
can run high profit margins. In 2001, when hotel profitability is
projected to decline, any contribution to the bottom line will be welcome.
Patrick Quek is president and CEO of PKF Consulting and Hospitality Asset Advisors International. He is located in the firms' San Francisco office.
Robert Mandelbaum at the firm:
3391 Peachtree Road
Atlanta, GA 30326
phone (404) 842-1150
fax (404) 842-1165