The latest U.S. hotel industry profit-and-loss data from CoStar shows that labor costs are easing and profitability growth is being led by the top 25 largest hotel markets.
Here are five takeaways from the data for November.
1. Labor Cost Growth Slows
Labor costs per available room (LPAR) are up 4.5% from September of last year, but that rate of growth has slowed since the beginning of the year. LPAR has grown by an average of only 0.6% per month this year with the flat growth coming from slower inflation, more contract work and other operational adjustments. Overall year to date, labor costs have grown more than 13% this year. Most of that growth is derived from the food-and-beverage department, where labor costs have increased as a result of improved demand from groups booking rooms during the week and related events.
2. Profitability Improves
After several months in a row of declines, gross operating profits per available room (GOPPAR) improved nearly 35% month to month in September to be nearly flat with last year's level. GOPPAR has not realized a year-over-year monthly increase since March. Any improvements in GOPPAR would have to come from higher demand and thus higher total revenue per available room (TRevPAR) as expenses aren’t budging very much.
3. Profits Driven by Rebounds in Top 25 Markets
The top 25 markets are driving the growth in the U.S. Total revenue per available room (TRevPAR) for these markets is up 12.2% year to date, whereas in all other markets TRevPAR is only up 2.9%. Expenses are typically higher for hotels in the top markets, which was the case in September.
4. Upper-Upscale Hotels Lead
Upper-upscale hotels experienced some of the steepest declines in profitability during the pandemic, but are now realizing the most growth. With weekday group demand rebounding, these hotels are continuing to see the largest improvements of all chain scales. Increases in total revenue per available room were nearly double that of all other chain scales year to date as of September. This led to increases of more than 16% in GOPPAR and 17% in earnings before interest, tax, depreciation and amortization per available room.
5. Catering, Banquet Revenues Grow 20%
Food-and-beverage revenues are continuously on the rise in 2023, with catering and banquets leading the way as of September, again thanks to improving group demand and events returning to hotels. Catering and banquet revenues per occupied room night were the highest of any of food-and-beverage department. However, the growth in expenses is slightly outpacing the growth in revenues, and hotels are seeing slightly lower food-and-beverage profit margins — dropping from 28.5% to 27.5% as of September.
Audrey Kallman is a senior research analyst at STR, CoStar's hospitality analytics division.
For more analysis of STR data, visit the data insights blog on STR.com.