Stronger Business Travel Leads to Profit Bounce

A bump in corporate travel at the end of the third quarter proved enough to boost GOPPAR and serve as a harbinger of continued strength in the hotel industry as it moves into the fourth quarter.

On a year-over-year basis, hotels recorded a 5.9-percent increase in profit per room, driven by growth in revenue across all departments, particularly Food & Beverage, up 7.6 percent, on a per-available-room basis.

As a result of the contribution from non-rooms revenue, TRevPAR at hotels in the U.S. was recorded at $252.30 this month, which was 3.4 percent above the same period in 2017.

While the summer was a relatively successful period of operation, owners and operators will be glad to see a return to more robust levels of performance and a busy fall period to support the profit growth recorded so far in 2018.
—David Eisen, Director of Hotel Intelligence, americas, hotstats

Growth in TRevPAR was further buoyed by an increasingly rare drop in labor costs, which were recorded at 35.1 percent of total revenue this month, 0.3 percentage points below the same period in 2017.

As a result of the movement in revenue and costs in September, the profit margin at hotels in the U.S. was recorded at a healthy 37.9 percent of total revenue.

In San Francisco, profit per room increased by 17.2 percent year-on-year in September as demand levels were driven by major technology conferences.

In addition to the Dreamforce conference, which is one of the largest software conferences in the world, the city’s Moscone Center also hosted the Disrupt SF event in September, driving the demand for hotel accommodation.

As a result of the increased activity, profit per room at hotels in the city jumped by more than $22 YOY in September to $150.13, which was the second-highest GOPPAR level recorded at hotels in the city in 2018.

The growth in profit was led by YOY increases across all revenue departments including Rooms, up 9.6 percent, and Food & Beverage, up 1.6 percent, on a per available room basis, which contributed to the 7.1-percent increase in TRevPAR at hotels in San Francisco this month to $365.57.

The growth in revenue at hotels in San Francisco was further stimulated by cost savings, which included a 2.2-percentage-point reduction in labor costs to 37.4 percent of total revenue.

As a result of the movement in revenue and costs, profit margin at hotels in San Francisco was recorded at 41.1 percent of total revenue in September.

“San Francisco, and the wider Bay Area, is renowned as a hub for technology companies and this is now translating into new events and conferences, supporting the continued growth in the sector and encouraging visitors related to the sector,” said Eisen. “This can only be a good thing for the health of the San Francisco hotel industry, which has shown signs of recovery in profit in 2018 following a challenging period of operation last year.”

Meanwhile, hotels in Phoenix had an even more stellar month, recording a 32.6 percent year-on-year increase in GOPPAR on the back of a 15.6-percent uplift in RevPAR, as top-line growth was driven by an increase in both volume and price.

September marked a return to stronger levels of performance for hotels in the city after the single-figure GOPPAR recorded in July ($5.96) and August ($4.38), as demand from the business segment returned and sparked an increase in profit per room, which hit $67.22.

The growth in profit per room this month was driven by increases in both room occupancy, which grew by 5.2-percentage points to 66.1 percent, as well as a 6.5-percent increase in achieved average room rate to $176.72.

And while the growth in achieved average room rate in the month was driven by an increase across all segments, it was primarily focused in the corporate (up 5.6 percent) and association/convention corporate group (up 8.5 percent) sectors.

“Hotels in Phoenix will be glad to see the end of the summer period as the desert city is not as much a popular leisure destination due to the stifling heat. This was reflected in the profit margin of hotels in the city,” said Eisen. “September has marked a return to business as usual and despite the challenges during the summer, year-to-date profit per room at hotels in Phoenix remains ahead of the same period in 2017.”

In addition to the 15.6-percent increase in rooms revenue, growth was recorded across all non-rooms departments, which contributed to the 9.8-percent increase in TRevPAR, which grew to $232.14.

The growth in top-line performance was further bolstered by a drop in costs, which included a 2.6-percentage point saving in labor, which still remained comparatively high at 38.7 percent of total revenue. This is well above the year-to-date average of 34.7 percent.

Despite the return to a more robust period of operations, profit conversion at hotels in Phoenix remained relatively low at 29 percent of total revenue.

Glossary:

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

Average Room Rate (ARR) – Is the total guestroom revenue for the period divided by the total guestrooms occupied during the period.

Room RevPAR (RevPAR) – Is the total guestroom 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.

GOPPAR – Is the total gross operating profit for the period divided by the total available rooms during the period.