BROOMFIELD, Colorado—As national hotel occupancies stretch to record levels, average daily rates continue to surge—to all-time highs in nominal dollar terms.
However, in inflation-adjusted (real) terms, the national average daily rate in 2014 was about the same level it was in 1999 and 2006. In fact, inflation-adjusted ADR doesn't change very much over time for the typical U.S. hotel, averaging about $109 going back to 1987.
How about profit?
Some will argue that even though we reached a new revenue-per-available-room peak (in nominal dollars) back in 2013, the hotel economy can't be considered fully recovered until we surpass the previous peak in real terms—and not just in RevPAR, but on a profit basis.
The following chart from STR Analytics’ HOST Almanac details U.S. hotel industry profitability (per-available-room) on a nominal basis from 1990 to 2014. Please note this data extrapolates only on scale with the total amount of properties reporting room revenue to STR and uses all properties that reported profitability data, not just same-store properties. Also, house profit is defined as profit before deductions for fixed charges and management fees.
In nominal terms, industry total revenues and house profit recorded all-time highs in 2014, but adjusting these amounts for inflation reveals a different story.
In real terms, total revenues for the industry fell short of the levels realized not only in the previous peak of 2007 but short of six other time periods since 1990. Similarly, the house profit realized in 2014 was bested six other times in the past quarter-decade, with the peak of $14,837 per-available-room occurring in 2000. However, the 2014 house profit did fall above the long-term average for the first time since 2008.
Full-service hotels are still 12% below their real profit peak of $21,230, recorded in 2000, though revenues are down only 5.8%. This suggests a slow, upward creep of expenses, and indeed full-service hotel payroll has been shown to be relatively inflexible during the revenue declines of 2001 and 2009. Real house profit for full-service hotels in 2014 was, however, above the long-term average by approximately 14%.
Interestingly, limited-service hotels did reach an all-time total revenue peak in 2014, on an inflation-adjusted basis, barely surpassing the previous peak set in 2007. However, house profit in real terms still fell about 6% shy of the 2007 peak, though is still 9% higher than the long-term average. The 2014 house profit of $9,130 per-available-room was only the sixth highest level since 1990.
Overall, while revenue and profit, like ADR, are still shy of their inflation-adjusted peaks, that new peak is in sight. Real house profit for the average hotel increased approximately 11% in 2014 compared to 2013. If similar increases occur in 2015, then by this time next year the industry will truly be at an all-time high.