ATLANTA—Coming out of the Great Recession, hotel operators in the United States struggled to earn revenue from sources other than the rental of guestrooms. However, in 2014, we began to see guests spend their money in other areas of the hotel.
According to the 2015 edition of “Trends in the hotel industry,” rooms revenue increased 7.3% in 2014. Concurrently, revenue within the food-and-beverage and other-operated departments grew 6.2%.
One example of a hotel outlet enjoying growth is the spa. In 2014, hotel spa revenues increased 5.1%, while department profits grew 10.5%. To evaluate how hotel spas achieved their gains in revenue and profits, PKF Hospitality Research, a CBRE company, analyzed the results of our firm’s 2015 “Trends in the hotel spa industry” report.
Revenue
Spa revenues increased 5.1% for the overall survey sample, but PKF-HR did observe differences based on property type. Spas operated within urban hotel properties enjoyed a stronger 7% gain in revenue. This is consistent with the strong performance of the primary urban markets and the return of group demand. Resort hotel spas somewhat lagged, as these properties saw their spa revenues increase 4.4%.
Massage services continue to generate the most revenue for hotel spas. In 2014, massage revenue comprised 54.5% of total spa department revenue, followed by sales from skin care/body work (17.1%), salon services (10.4%), and retail operations (9.9%). Revenues from these major sources all increased in the 4%-to-5% range from 2013 to 2014.
On a percentage basis, fees generated from selling memberships to local patrons led revenue growth. Revenues from local residents and members contribute 59% of the revenue earned by urban hotel spas. Resort hotels, on the other hand, earn 62%—which is the majority—of their revenue from hotel guests.
Only two sources of spa revenue suffered declines in 2014: daily use fees, and health and wellness services. Given the rise in hotel occupancy levels, it appears that spa managers needed to limit the opportunities for local patrons to use their facilities on a one-off basis. It should be noted that only a small percentage (3%) of properties reported revenue from health and wellness.
Expenses
The cost of operating a hotel spa increased 3.4% from 2013 to 2014. Consistent with the “Uniform system of accounts for the lodging industry,” spa department expenses consist solely of direct costs such as labor, cost of goods sold and other operating supplies. Not included are unallocated expenses for administration, marketing, maintenance and utilities.
Labor costs are the greatest expense within hotel spa departments, comprising 57.3% of total department revenue. This includes the cost of spa therapists and technicians who are both direct hotel employees and independent contractors. Other major expenses are the cost of goods sold in spa retail operations (5.3%), operating supplies (2.2%) and laundry and dry cleaning (2%).
From 2013 to 2014, labor costs increased 2.9%, and the cost of goods sold grew 5.3%. Unfortunately, retail sales increased just 4.1%. All other department expenses were limited to just a 0.6% increase.
Profits
With revenues growing greater than expenses in 2014, hotel spa departments posted a healthy 10.5% increase in department profits. Benefiting from the stronger gains in revenue, urban spas enjoyed a 13.1% boost on the bottom line, which is greater than the 9.8% profit gain achieved by resort hotel spas.
Spa department profit margins averaged 25.4% for the overall sample. Resort hotels (28.1%) were more efficient than urban hotels (18.4%) in converting spa revenues to profits. Higher wage rates in the nation’s major cities contribute to a greater labor cost burden at urban hotel spas.
The halo effect
Hotel spas might truly be a minor operated department. In the hotels that manage their own spas, spa department revenue accounted for just 3.9% of total hotel revenue in 2014. However, there is anecdotal evidence that the benefit of having a hotel spa can go beyond dollars and cents.
The presence of a spa helps solidify properties as luxury and upper-upscale hotels. Comparing the performance of spa properties with comparable hotels in our “Trends” database we find that the spa hotel sample had a higher average daily rate in 2014, and properties in the sample were able to increase their room rates to a greater degree.
Operating a spa also enhances the attraction of the hotel to certain demand segments. Although it might not be used by all conventioneers, the presence of an on-site spa and associated fitness facilities is a must for most meeting planners. Further, a spa helps position the property as a healthy hotel with all the associated menus and amenities. More and more travelers want to maintain their healthy lifestyle while on the road.
A healthy future
Favorable economic and demographic trends foretell a very bright future for hotel spas. Occupancy rates at the upper-priced lodging segments in which most hotel spas operate are forecast to achieve all-time record levels through 2017. Increased guest counts, combined with a growing desire for healthy experiences while traveling, should result in a continuation of solid gains in spa department revenues and profits.