Along with cutting into the buying power consumers have, inflation means potentially tighter profit margins for hotels as their operating expenses grow.
During the “Inflation Abomination” presentation at the 2023 Hotel Data Conference, Claudia Alvarado Cruz, senior analytics manager of financial performance at STR, and Aran Ryan, director of lodging analytics at Tourism Economics, spoke about how hotels have been managing rising costs against their revenue streams.
Whether looking at consumer price index data or STR data, real hotel average daily rates are still below 2019 levels, Ryan said.
“Hotel pricing has lagged inflation,” he said. “I think that’s a positive for where we go from here. As hotels continue to reclaim the value that they used to have, they can still see further room for rate growth.”
Using a hypothetical upscale hotel as an example, Alvarado Cruz said this hotel segment’s metrics are mostly middle of the pack. Occupancy is down compared to 2019 but the revenue coming in helps profitability reach near recovery levels.
When breaking down the sources of hotel revenue by comparing June year to date 2022 and 2023, for both years rooms revenue makes up the largest portion, she said. What’s different is the rooms revenue share for 2023 is down slightly, from 70% in 2022 to 68%.
“This may be a sign of the slowing pricing power that hotels had in previous years,” she said.
In turn, the share for other food and beverage, which includes catering, audio/visual and room rentals, increased slightly, Alvarado Cruz said. The revenue from catering is still low compared to 2019, so it may be that audio/visual and room rental costs are higher, not that there are more events occurring.
Wages for the leisure and hospitality sector, which includes hotels and restaurants, have increased 25% on average since before the pandemic, Ryan said. Compared to what is happening more broadly in private sector wages, hospitality and leisure wages have grown faster.
“I think that’s partly a function of everybody who left their hotel industry jobs and found other employment,” he said. “As hotels reopened, they’ve been trying to reach staff, and it’s just that much harder to bring everybody back and they’re finding they have to pay more to fill these positions.”