Industry Update
Press Release25 June 2020

Signs of Life: After Bottoming Out, Global Hotel Industry Claws Back

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TRI Hospitality Consulting

It's baby steps back to profitability, but amid a pandemic, no bad news is good news.

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Though the global hospitality industry is still in critical condition, it appears to be coming off life support and moving to intensive care, given the extraordinary circumstances foisted by COVID-19. And as parts of the world reopen and more hotels receive guests, the performance data should continue to improve, absent any new wave of infection, which is not entirely ruled out.

But as of May, and on a month-over-month (MOM) basis, performance is either stabilizing or picking up. April, fingers crossed, was the bottom.

U.S. Eases Into Reopen

In the U.S., between April and May, total revenue per available room (TRevPAR) was up 39% (down 92% year-over-year) and gross operating profit per available room (GOPPAR) was up 32% to $-17.25 (down 116.2% YOY).

Absent a surge in cases, which is a possibility, the expectation is that MOM numbers will continue to improve, especially as more states move into Phase Two, which allows for non-essential travel to commence and sets out certain guidelines, like these, should hotels decide to reopen.

Occupancy and room rate in May remained well off 2019 levels, but did climb 4 percentage points and 5%, respectively, from April. May RevPAR of $13.76 (down 92.2% YOY) was up 54% from April and down 79% from RevPAR of $66.27 in March, the first month that COVID-19 impact showed up in hotel industry performance numbers.

Further and expected YOY expense drops showed up in the data, as many hotels remained closed or operated at limited capacity. Labor costs on a per-available-room basis were down 74.4% YOY, while utility costs were down 45% YOY. Anecdotally, the expectation is that water bills will rise due to increased laundry operations and additional and more frequent washing of things like linens due to cleaning protocols. One hotelier told HotStats that his water bill was already up 33%.

Profit margin was -87.3% of total revenue, up 93 percentage points from April, but down 125 percentage points from the same time a year ago.

Profit & Loss Performance Indicators — U.S. (in USD)

Europe Bottoms Out

Europe passed the peak of coronavirus infections in early May, according to the European Centre for Disease Prevention and Control (ECDC). As several countries started to loosen some lockdown restrictions, profit-per-available-room declines showed a significant deceleration on a MOM basis. GOPPAR in May was down 1.2% compared to April and even though GOPPAR remains 125.5% below May 2019, this reduction is an indicator that the region hit its bottom.

Occupancy recorded an uptick of 1.3 percentage points MOM to 7.3%, which resulted in a 17.9% MOM increase in RevPAR. These results are still far from the numbers recorded in May of the previous year, but they are the first signs of recovery in the region. The closure of most ancillary revenue streams fueled the 5.4% MOM decline in TRevPAR, which equals a 94.2% YOY slump.

Labor costs accompanied the hike in occupancy, recording a 1.2% MOM expansion, while overhead costs were cut by 0.9% MOM. Profit conversion in May was recorded at -166.1% of total revenue, down 11.1 percentage points from April and off from 37.8% in the same month of the previous year.

Profit & Loss Performance Indicators — Europe (in EUR)

APAC Upturn

Like other regions, Asia-Pacific appears to have bottomed out and is now clawing its way back little by little. May results show the first MOM upticks for both top-line and bottom-line metrics since December 2019. GOPPAR for the region took a 78.2% MOM jump, and at -$3.04 is making strides toward breaking-even after turning negative in March.

Occupancy almost reached 30% in May, and at 26.6% was a 7.4-percentage-point increase compared to April. And even though this is still 43.6 percentage points below May 2019 numbers, it's the first time since February that occupancy has placed above 25% in the region. This rise in volume drove the 39.5% MOM surge in RevPAR. Further contributing to the top-line, F&B revenue per available room was up by 89.8% MOM, resulting in a much needed 48.1% MOM expansion of TRevPAR.

Despite top-line growth, hoteliers in APAC were able to avoid cost creep and managed to reduce labor costs and overheads by 6.7% and 1.3%, respectively, on a MOM basis. As a result, profit conversion in May was recorded at -7.5% of total revenue, placing 43.4 percentage points above the previous month.

Profit & Loss Performance Indicators — APAC (in USD)

Middle East Momentum

May saw MOM jumps for the Middle East in both total revenue and profitability. RevPAR in the region dropped off precipitously after February, and in May it hit $23.03, which, though 78.4% down from the same time a year ago, was up 5.9% over April, underpinned by a 5-percentage-point uptick in occupancy. Though occupancy was up in the month, average rate decreased 14.5% in May over April, a sign that hoteliers in the region are resigned to sacrifice rate in order to build back occupancy.

TRevPAR grew 10.5% in the month over the month prior, bolstered by F&B revenue, which saw a 25% MOM increase.

Expenses continued to fall, including labor and total overheads, down 50.6% and 50.5% YOY, respectively. Meanwhile, on a MOM basis, labor and overheads costs were relatively static, a sign of an industry balancing out amid a slow return to normalcy.

After breaking even in March, GOPPAR fell into negative territory in months thereafter. While May remained negative in dollar amount, it was 20% better than April. It's still down 120.8% YOY.

News that Saudi Arabia will only allow around 1,000 pilgrims residing in the kingdom to perform the Hajj in July will be a huge blow to the Middle East's overall numbers. Some 2.5 million pilgrims from around the world visit the cities of Mecca and Medina annually for the week-long ritual scheduled to begin in late July.

Profit margin was up 13 percentage points in May over April to -34.8% of total revenue.

Profit & Loss Performance Indicators — Middle East (in USD)

Summary

Hotel industry data amid COVID-19 has been like a horror movie that forces you to cover your eyes. But at least in May, you can take a peek—though only insofar as it pertains to MOM data. YOY data is still a fright.

May is the light at the end of the tunnel that hoteliers across the globe have been in search for. A glimmer of hope that revenue and profit, though still mightily depressed, are at least turning around. After months of frowns, it's a trend hoteliers can smile at.

About HotStats

HotStats provides a unique profit-and-loss benchmarking service to hoteliers from across the globe that enables monthly comparison of hotels' performance against competitors. It is distinguished by the fact that it maintains in excess of 500 key performance metrics covering 70 areas of hotel revenue, cost, profit and statistics, providing far deeper insight into the hotel operation than any other tool. The HotStats database totals millions of hotel rooms worldwide. For more information, visit www.hotstats.com.

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Kathryn Potter
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