TRevPAR Falls to Annual Low at U.S. Hotels on Revenue Fail

While RevPAR and GOPPAR levels exceeded the previous annual low recorded at hotels in the U.S. back in January, failure to drive non-rooms revenue on the back of high occupancy levels drove TRevPAR down to an annual low, according to data tracking full-service hotels from HotStats.

Overall, August will be noted as another positive month of performance for hotels in the U.S. with year-on-year growth recorded across all top-line revenues, including rooms (up 2.5 percent), food & beverage (up 5.3 percent) and conference & banqueting (up 7.3 percent) on a per-available-room basis.

And as a result of the upward movement across all revenue departments, TRevPAR at hotels in the U.S. increased by 3.6 percent.

In addition, and despite a 0.5-percentage-point increase in labor to 38.1 percent of total revenue, profit per room at hotels in the U.S. increased by 4.5 percent, to $74.99.

However, August is a unique month of performance, as the shift in demand dynamics means that hotels in the U.S. have to alter strategy to maintain performance levels.

This includes driving occupancy, which was at 78.5 percent in August, only slightly below the year-to-date figure at 78.7 percent.

In contrast, at $190.60 this month, achieved average room rate was almost $18 below the average in the eight months to August 2018 at $207.96.

Furthermore, and despite the premium room occupancy levels, non-rooms revenue levels at hotels in the U.S. in August came in at $77.07, well below year-to-date average of $96.25.

This was primarily due to the significantly lower contribution from the F&B department at $58.32 per available room, compared to $76.95 for year-to-date 2018.

As a result of the lower contribution from non-rooms revenue this month, TRevPAR at hotels in the U.S. was at its lowest level in 2018, at $226.75, behind the previous low recorded in January at $232.20.

Capturing volume in August never seems to be an issue for hotels in the U.S. as demand levels soar, fuelled by domestic and international travel patterns. However, with a higher proportion of demand from leisure sources, the ability to drive premium average room rates is challenged. Furthermore, the resistance to rate is reflected in the overall leisure consumer spend. While this does not suggest that the overall spend for leisure visitors is less than commercial visitors, it does suggest that spend on accommodation is not the priority and much of this ancillary expenditure takes place outside of the hotel in local restaurants, bars and at tourist attractions.
—Pablo Alonso, CEO, Hotstats

In contrast to the performance of hotels in the U.S. overall, properties in Los Angeles performed well in the month of August, led by a peak in the number of passengers handled at Los Angeles International Airport (LAX).

This is further illustrated by profit per room recorded at hotels in Los Angeles in August reaching $91.57. While this is slightly off the peak in June 2018, at $102.12, it is above the year-to-date figure of $91.27.

The robust performance at hotels in Los Angeles this month was led by premium room-occupancy levels, which hit 90.4 percent, a high this year, and a 1.1-percentage points increase on the same period in 2017.

However, the growth in room occupancy was not sufficient to offset the drop in rate, which fell by 1.9 percent to $209.06 and contributed to the 0.7-percent drop in RevPAR to $188.94.

Furthermore, with demand in August led by the leisure segment, the contribution from non-rooms revenue departments at hotels in Los Angeles fell to just 25.5 percent of total revenue, compared to the year-to-date contribution of 30.7 percent.

Despite this, robust year-on-year growth in non-rooms revenue, which included a 5.4-percent increase in F&B on a per-available-room basis, fuelled a 1.2-percent increase in TRevPAR to $253.79.

Yet, GOPPAR levels fell as hotels in Los Angeles continue to suffer the impact of rising costs, which this month were led by the 1.1-percentage-point lift in labor to 36.1-percent of total revenue, a likely product of ongoing increases in the state minimum wage.

GOPPAR growth at hotels in Los Angeles has stalled some since the positive increase in 2016 (up 10.7 percent), with a decline of 2.0 percent recorded in 2017, and the challenges being faced in 2018 resulting in a year-to-date drop of 0.8-percent.

“Visitor numbers to Los Angeles have been strong in recent years, hitting 48.3 million visitors in 2017, an increase of almost 10 million from the 38.5 million recorded in 2010,” said Alonso. “However, this does not seem to have directly translated into hotel performance, which may be due to recent increases in Los Angeles’ inventory.”

Properties in Denver also performed well in August, recording a 5.7-percent year-on-year uplift in profit per room to $87.73, which was second only to the GOPPAR recorded in June at $91.60, illustrating the strength of demand in the Colorado capital during the summer months.

The bottom-line growth this month was driven by top-line increases, which include a 1.8-percent increase in rooms revenue in spite of a 2.3-percentage point drop in room occupancy, to 91 percent, as well as declines in non-rooms revenues.

Nevertheless, hotels in Denver successfully recorded a 1.5-percent increase in TRevPAR in August to $217.46. The increase in revenue was further supported by a 0.2-percentage point saving in labor costs, to 31.1 percent of total revenue, with profit conversion recorded at a heady 40.3 percent of total revenue

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.