Rate Peak Drives Profit Growth for Hotels in the USA

Achieved average room rate at hotels in the USA hit a high of more than $220 in March, fuelling the continued increase in profit per room as the market goes from strength to strength, according to the latest worldwide poll of full-service hotels from HotStats.

Whilst the achieved average room rate recorded at hotels in the USA represented a year-on-year increase of just 2.1-percent, at $220.42, it was enough to exceed the previous recent high of $217.06 recorded in October 2017 and continues the purple patch of performance currently being enjoyed by USA hoteliers.

In addition to the growth in rate, a 0.2-percentage point increase in room occupancy, to 81.7-percent, helped RevPAR levels at hotels in the USA also soar to the highest level recorded in recent years, at $180.07, which is almost 14-percent above the RevPAR for the rolling 12-months to March 2018 at $158.28.

In line with the year so far, the rate growth at hotels in the USA in March was spurred by increases in both the Individual Leisure (+1.8-percent) and Group Leisure (+4.2-percent) segments, which was in contrast to a decline in rate in the Corporate (-2.2-percent) segment.

Despite the peak performance in the Rooms department, a decline was recorded in Non-Rooms revenues this month, which included a drop in Food & Beverage Revenue (-1.0-percent), as well as Conference & Banqueting Revenue (-4.0-percent) on a per available room basis.

As a result, TrevPAR at hotels in the USA increased by 1.3-percent, to $285.87. This also represented a post-Global Financial Crisis TrevPAR peak for the USA market.

Profit & Loss Key Performance Indicators – USA (in USD)

However, due to escalating costs, which included a 0.6-percentage point increase in Labor costs, to 32.9-percent of Total Revenue, profit per room at hotels in the USA in March (at $119.49) remained behind the previous high recorded in this measure at $121.56 in October 2017.

Nevertheless, the contribution this month means that hotels in the USA successfully recorded a 1.8-percent increase in GOPPAR for Q1 2018, which has continued the positive period of trading following the profit growth in 2016 (+3.6-percent) and 2017 (+3.0-percent).

“March is typically a positive month of performance at hotels in the USA driven by a strengthening in demand from both the leisure and corporate segments following a not particularly exciting January and February. It should also mark the beginning of a buoyant period of trading through to August.

With profit performance already well ahead of the same period in 2017 and the strength of performance in March could mean hotels in the USA are getting set for yet another banner year,” said Pablo Alonso.

Pablo Alonso, CEO of HotStats

In contrast to the positive performance recorded across the USA, hotels in Austin are struggling to maintain profit levels as additions to supply hit revenue and costs continue to creep upwards.

For hotels in Austin, a decline in revenue was recorded across all measures, including Rooms (-3.1-percent), Food &Beverage (-1.4-percent) and Conference & Banqueting (-5.8-percent), which contributed to the 3.5-percent decline in TrevPAR in March, to $308.99.

The key issue facing hotels in Austin is additions to supply, which have recently included a 1,048-bedroom Fairmont, a 1,012-bedroom JW Marriott, an 801-bedroom Hilton, a 492-bedroom Renaissance, a 278-bedroom Aloft/144-bedroom Element, as well as the 160-bedroom Hotel Zaza.

Whilst hotels in Austin managed to maintain room occupancy levels at a stalwart 87.5-percent in March, achieved average room rate for hotels in the city fell by 3.2-percent, to $262.78.

The decline this month contributed to the 2.6-percent drop in achieved average room rate for Q1 2018, to $222.03, as the market becomes increasingly competitive.

Profit & Loss Key Performance Indicators – Austin (in USD)

The decline in revenue levels at hotels in Austin was further exacerbated by the uplift in Labor costs, which increased by 1.1-percentage points in March to 21.6-percent of total revenue.

On a positive note, although profit per room at hotels in the Texan capital fell by 7.9-percent year-on-year, to $167.79, profit conversion remained punchy at 54.3-percent of total revenue. Furthermore, the GOPPAR recorded at hotels in Austin in March remained 51.3-percent above the profit per room for the rolling 12 months to March 2018, at $110.92.

“The development boom in Austin has undoubtedly had an impact on the profit performance of hotels in the city and the top of the market in particular is becoming very crowded with significant openings from key upscale brands, such as Fairmont and JW Marriott.

However, the pressure is unlikely to let up anytime soon as three of the largest players in the hotel industry have big plans for development across Texas, with Marriott planning 92 hotel developments, Hilton planning 75 hotels and IHG looking at more than 100 schemes across their range of brands within the three major metro areas,” added Pablo.

Pablo Alonso, CEO of HotStats

Hotels in Seattle fared better this month, recording a 4.6-percent year-on-year increase in TrevPAR, to $228.90, which was on the back of growth in revenue in the Rooms (+4.5-percent), as well as Non-Rooms departments, including Food & Beverage (+3.5-percent) on a per available room basis.

And despite a 0.1-percentage point increase in Labor costs, to 33.3-percent of total revenue, hotels in Seattle recorded a 5.3-percent increase in profit per room for the month, to $91.40.

This continues the strong performance for Seattle hoteliers which has resulted in a steady increase in GOPPAR over the last 24 months to $108.58 in the 12 months to March 2018 from $101.34 during the same period in 2015/16.

Profit & Loss Key Performance Indicators – Seattle (in USD)

Glossary:

Occupancy (%) - Is that proportion of the bedrooms available during the period which are occupied during the period.

Average Room Rate (ARR) - Is the total bedroom revenue for the period divided by the total bedrooms occupied during the period.

Room Revpar (RevPAR) - Is the total bedroom revenue for the period divided by the total available rooms during the period.

Total Revpar (TRevPAR) - Is the combined total of all revenues divided by the total available rooms during the period.

Payroll % - Is the payroll for all hotels in the sample as a percentage of total revenue.

GOP PAR - Is the Total Gross Operating Profit for the period divided by the total available rooms during the period.