U.S. hotel industry profitability trends in 2023 provide a yardstick for predicting revenue metrics this year.
Total industry revenues and profits were well beyond 2019 levels as pricing power continued to outweigh the impact of weakening demand.
On a per-available-room basis, all key profitability metrics have improved in 2023 compared to 2022. Total revenues were 117% of 2022 levels. Even with total labor expenses at 115% of 2022 levels, gross operating profits and earnings before interest, tax depreciation and amortization improved over 2022 — up 22% and 24% respectively.
GOP margins were slightly lower than in 2022, and about a percentage point lower than in 2019.
The bulk of the improvements stemmed from demand growth in the top 25 U.S. hotel markets and upper-upscale chains, pointing to the continued return of groups.
Room demand was up every month of the year for the top 25 markets, and occupancy improved during weekdays for nine months of the year. That demand growth led to a 12.8% year-over-year increase in total revenue per available room for the top 25 markets, while that metric in all other markets only improved by 4.6%, and by 9.6% for the total U.S.
Upper-upscale hotel occupancy grew nearly 6% for the year, which helped boost revenues outside of the rooms department. Spending for non-rooms departments was up an average of 19.1%. Overall, total RevPAR was up 12.9%, which was 4.3 percentage points higher than for upscale hotels, the next best-improved chain. That double-digit growth amplified GOP gains for the chain scale as well, up 13.6%.
Demand from group travelers drove the largest total RevPAR gains compared to the total U.S. and top 25 markets, although the top 25 realized the largest growth. All three grew profitability in 2023, but the top 25 was the only one improving by more than 10%. Profits from groups improved compared to 2019, although by only 0.1%. Group demand is up 16.4% compared to 2022, but when adjusted for inflation, food-and-beverage revenues are down 26.1% compared to 2019.
Total labor costs per occupied room increased the most at hotels in the top 25 markets, up 9.2% compared to an increase of 8.7% for the total U.S. Other operated departments accounted for the largest increases, which include labor costs for parking, golf, spa/health clubs and other minor operated departments.
While labor costs continued to grow overall, the monthly growth rate through 2023 for the U.S. was only 0.4%, which paired with healthy total revenues led to profitability growth. However, that wasn’t the case for every segment as economy hotels and independents experienced even higher growth rates.
Labor issues and growing operating costs have been a consistent piece of the puzzle for hoteliers and will continue to be this year and in the future. However, continued operating efficiencies and the higher occupancy will help drive increases in total revenues, led by the resurgence in group demand and strength of leisure demand.
These positive factors will help to offset growth in expenses and will lead to profitability growth, but any growth in EBITDA will not be realized this year amid the reality of higher insurance costs and property taxes.
Raquel Ortiz is a director of financial performance at STR, CoStar's hospitality analytics division.
For more analysis of STR data, visit the data insights blog on STR.com.