US full-service hotels operating expense trends
Smith Travel Research
In 2005, total revenue grew 11.7 percent, while GOP increased 16.4 percent. 2008 finished at a 4.7-percent decline in total revenue, while GOP decreased 7.5 percent during the same period.
When looking at HOST expenses on a per-occupied-roomnight perspective, distributed (rooms, food and beverage, telecommunications) and undistributed (administrative and general, marketing) expenses predictably behave differently. Undistributed expenses have remained the most stable in terms of growth rates (ranging from a low of 2.9 percent to a high of 7.2 percent) as operators appear to reduce, but not eliminate, sales positions to pursue what demand there is in the market.
During the last recession in 2001-2002, per occupied room, distributed operating expenses, the most variable of hotel expenses, still were growing at a higher rate than total revenues. (See chart below.) In the current recession, operators will be required to evaluate how much they’re discounting room rates and other services versus how much they’re spending (or not spending) on staff, expendable supplies and in-room amenities.
Historical HOST time series remind us that when we discount our products and services, related operating expenses for those revenue-producing sources should be closely monitored for reasonableness during poor economic times. Don’t forget: The wider the gap in growth rate between total revenue and distributed departmental operating expenses (when distributed expense growth rates are higher than total revenue growth rates), the harsher the impact on a hotel’s profitability.
STR provides clients from multiple market sectors with premium, global data benchmarking, analytics and marketplace insights. Founded in 1985, STR maintains a presence in 16 countries with a corporate North American headquarters in Hendersonville, Tennessee, and an international headquarters in London, England. For more information, please visit str.com.