NASHVILLE, Tennessee — Over the last couple of years, hotel profit-and-loss accounts have undergone quite a change in how they are analyzed.
During a session at the Hotel Data Conference titled “Parsing the P&L: Analyzing Changes in Profit and Loss,” Audrey Kallman, operations analyst at STR, said revenues, costs and expenses have changed in order of importance across the pandemic months. STR is CoStar Group's hospitality analytics firm.
Kallman added they will continue to change as hoteliers head into budget season.
There's also a need to understand what profitability meant in the years before and during the pandemic, which will inform how to better measure profitability in the future, she said.
“Profitability peaked in 2019, but in that year all segments saw very limited [total revenue per available room],” Kallman said. “Over the past four years, labor costs have outpaced revenue growth, and as occupancy increases, you will see an additional rise in labor costs."
Kallman said the break-even percentage of occupancy decreased during the pandemic and continued falling as hoteliers further understood how to reduce expenses.
In 2019, total RevPAR in the U.S. averaged $209.27 but fell 65.8% to $71.59 in 2020.
Gross operating profit per available room as a percentage of revenue was 37% in 2019 but only 13.2% in 2020. While earnings before interest, taxes, depreciation and amortization as a percentage of revenues equaled 26.2% in 2019, that metric collapsed in 2020 to -73%.
“Only 45% of hotels achieved positive net income in 2020. … Profit declines tend to track with revenue declines,” Kallman said.
Recovery Reaction
Hoteliers are eager to see how profitability can be optimized as more U.S. markets recover.
Kallman said total RevPAR surpassed 2019 levels for the first time in June 2022, reaching $226.10, whereas that figure averaged $224.60 in 2019.
June 2022 gross operating profit per available room ($91.23) also outpaced June 2019 levels ($90.88).
“Room rate premiums pushed [total revenue per occupied room] growth,” Kallman said.
She said expense ratios usually follow a typical pattern.
“Labor costs per occupied room were $30.82 in 2019 and $33.70 in 2022; [food and beverage] costs were $32.99 in 2019 and $30.21 in 2022. If a hotel has less [food and beverage] labor, that drives stronger margins, 35% in 2019 and 31% in 2022,” she said.
Salary and payroll taxes have increased notably during the pandemic. In 2022 they changed to 65% and 35%, respectively, down from 71% and 29% in 2018.
“This is because hotels have changed their staffing structures, using more contractual staffing,” Kallman said.
“Pre-pandemic revenue growth could not keep up with the growth of labor costs, leading to weakening profit margins. … Pandemic recovery is driven by demand rebound paired with strong rates, with the return of 2019 profit levels in the U.S. arriving in the second quarter of 2022," she said. “The hospitality staffing crisis drives strong growth in wages despite overall lower staffing numbers."
The good news is that profit margins stand today very close to exceeding 2019’s peak, Kallman said.