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Summertime: Revenue and Profit Up, Costs, Too

The global hotel industry has a strong summer story to share: Revenue and profit are creeping back to or exceeding 2019 levels. Problem is, expenses are also making a strong comeback.

Consider Europe: It’s been a swell summer for its hotels. RevPAR in July was up to €159, the highest level it’s been in three years, and 17% higher than in the same time in 2019. It’s a similar trajectory for the UK, where RevPAR has reached its highest level in almost four years.

Profit has been on a similar course, but as revenue has climbed, GOPPAR has leveled off as costs begin to eat into the top line.

GOPPAR hit €94 in July. The good news: It’s almost €20 higher than in July 2019, but down versus the previous month. The trajectory is still strong: GOPPAR is now up 1,935% since January 2021. The bad news: expenses are showing some teeth and cutting into the impressive revenue gains, which have been fueled by strong rate growth that hit €222 in July, 43% higher than at the same time last year.

Total payroll was recorded at €55 on a PAR basis in July, which though down versus the previous month, has now exceeded its July 2019 level by more than €2. Total other expenses hit an all-time high of €43, €4 higher than in July 2019. A portion of the expense jump was attributed to a rise in utility costs, which are now at €8 on a PAR basis, a full €3 higher than at the same time in 2019. The largest portion of that are electric costs, which are soaring throughout Europe, due in part to the war in Ukraine and its impact on natural gas prices. Electricity at Europe’s hotels is now more than €5 on a PAR basis, its highest level ever recorded and €2 higher than at the same time in July 2019.

U.S. Flat

The U.S. trajectory has been a bit more muted than Europe’s. January through March saw electric growth in profit, but has since stabilized and remains below 2019 levels, though almost on par. GOPPAR in July hit $82, $1 below July 2019.

Like profit, revenue has been somewhat flattish since March, with RevPAR recorded at $154 in July, $13 lower than July 2019.

The one silver lining is that payroll costs remain well below 2019 levels, as employment levels stay below 2019, according to the U.S. Bureau of Labor Statistics. Hourly earnings, however, are now above $20 for the first time ever, and $4 higher than at the same time in 2019.

Up and Down Middle East

It’s been a roller coaster of a ride for the Middle East year-to-date. The World Expo 2022 in Dubai helped push revenue and profit levels up during the back half of 2021 and into Q1 2022, but after its completion, performance dropped dramatically.

RevPAR in July 2022 is at $116, which is around $50 less than its peak in March 2022, but still above its 2019 level—good news since summer months in the Middle East tend to draw less visitors. GOPPAR, meanwhile, was around two times higher than its 2019 level at $62. The Middle East has been one of the most resilient regions on a performance-wide basis, also aided by average rates that are well above their 2019 levels.

Total payroll in the region has been flat since February, having only moved around 50 cents.

China Groove

After successive months of down performance, due in part to widespread COVID lockdowns, China has seen its fortunes turn, with GOPPAR now up three consecutive months to $34.50 in July, which is still below its 2019 level, but only by $4.

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