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Upper-upscale branded hotels’ operating expense trends
November 23 2009

In 2008, each room sold made less room department profit than in 2007.

By Lana Yoshii
VP, Content Management, STR
lana@str.com

HENDERSONVILLE, Tennessee—Hotels have been cutting back on operating expenses because of the current economic conditions, but how have the past years’ expenses trended versus revenue growth? This article explores the past three years’ upper-upscale branded hotels’ operating revenues and expenses. (Upper-upscale brands include such brands as Hilton, Marriott, Westin and Hyatt.)

Using Smith Travel Research’s Hotel Operating Statistics Study (HOST) data, we sampled data from 575 U.S. upper-upscale, full-service hotels from 2006 through 2008. The average hotel size in this sample is 462 rooms. 

Historical performance of the sample of hotels:
  2006 2007 2008
Occupancy 71.6% 72.5% 70.6%
ADR $159.19 $167.94 $169.95
RevPAR $113.90 $121.68 $120.00
GOP* % 35.9% 36.9% 36.3%
Source: STR HOST data, November 2009
* Gross operating profit percentage

When reviewing the aggregated operating revenues and expenses:

Rooms department

In 2007, total rooms revenue increased 6.9 percent while department expenses only increased 4.9 percent. But in 2008, when the economic recession started, room revenue declined 1.4 percent. Operators maintained rooms department expenses at the same levels as 2007, with only a 0.8-percent increase in payroll. On a per-occupied-room basis, room revenue (or room rate) actually gained 5.5 percent in 2007, with rooms expenses increasing 3.5 percent (1.3-percent increase in rooms department payroll). The following year, room revenue per occupied room increased 1.2 percent; however, department expenses increased 2.7 percent (with a 3.5-percent increase in department payroll). Although total rooms expenses appeared to decline in line with total room revenue increases or declines, statistics reveal that in 2008, each room sold made less department profit than in 2007.

Food and beverage

In 2007, total food-and-beverage revenues increased 5.2 percent with department expenses increasing 4.7 percent. The following year, F&B revenue declined 2.8 percent. Expenses were reduced 3.2 percent, with a 1.0-percent payroll expense decline. On a per-occupied-room basis, 2007 F&B revenue increased 3.8 percent, while expenses only increased 3.3 percent (1.9-percent increase in F&B payroll per occupied room). In 2008, F&B sales per occupied room remained basically flat (0.2 percent decline). Department expenses declined 0.6 percent despite a payroll increase of 1.7 percent per occupied room.

Undistributed operating expenses

While the major operating revenue-generating departments have been working toward reducing expenses as revenues decline, undistributed operating expenses (e.g., administrative and general, marketing) have shown some strides in cost control. In 2007, although room revenue increased 6.9 percent, A&G expenses increased 7.2 percent (4.8 percent increase in payroll). During that year, marketing expenses increased 3.7 percent, and property operations and maintenance expenses increased 4.5 percent. Payroll expenses in those departments did not exceed the total department expense in 2007.

In 2008, A&G and marketing payroll expenses increased by more than 3.0 percent while other expenses in those departments were reduced, resulting in almost a 1.0-percent increase in those total departments’ expenses. Total property operations and maintenance expenses declined 2.0 percent while payroll expenses increased almost 1.0 percent.

Previous year percent change in total department expenses
 

2007 % chg

2008 % chg

Rooms      
Room Revenue 6.9% -1.4%
Room Expense 4.9% 0.0%
Room Payroll  2.6% 0.8%
F&B      
F&B Revenue 5.2% -2.8%
F&B Expense 4.7% -3.2%
F&B Payroll  3.3% -1.0%
Undistributed Operating Expenses    
A&G Expense 7.2% 0.8%
A&G Payroll 4.8% 3.1%
Marketing Expense  3.7% 0.7%
Marketing Payroll 1.0% 3.5%
Property Maintenance Expense 4.5% -2.0%
Property Maintenance Payroll 2.5% 0.9%
Source: STR HOST data, November 2009

Per occupied room revenues and expenses
  2006 2007 2008 2007 % chg 2008 % chg
Rooms           
Room Revenue $159.19 $167.93 $169.96  5.5% 1.2%
Room Expense $39.62 $41.02 $42.13 3.5% 2.7%
Room Payroll $24.55 $24.87  $25.75 1.3% 3.5%
Food & Beverage          
F&B Revenue $80.18 $83.21 $83.05  3.8%  -0.2%
F&B Expense $57.58 $59.48  $59.13 3.3% -0.6%
F&B Payroll  $33.13 $33.76 $34.33 1.9% 1.7%
Source: STR HOST data, November 2009

Per available room undistributed operating expense departments
Undistrib. Op. Expenses 2006 2007 2008 2007 % chg 2008 % chg
A&G Expense $13.93 $14.94 $15.05 7.2% 0.8%
A&G Payroll  $6.82 $7.15  $7.37 4.8% 3.1%
Marketing Expense  $12.49 $12.94 $13.03 3.7% 0.7%
Marketing Payroll $4.36  $4.41 $4.56 1.0% 3.5%
Property Maint. Expenses $8.39 $8.77 $8.60 4.5% -2.0%
Property Maint.          
Payroll $4.35 $4.46 $4.50 2.5% 0.9%
Source: STR HOST data, November 2009

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