NASHVILLE, Tennessee—The U.S. hotel industry is making strides on the road to profitability, although progress varies by market and chain scale, according to new data from STR and STR Analytics’ Hotel Operating Statistics, or HOST Study.
“For 2011, the total U.S. hotel industry saw net income of $33 billion,” said Ali Hoyt, business project manager at STR Analytics, during a breakout panel titled “Unlocking the profitability puzzle” during last week’s Hotel Data Conference. STR and STR Analytics are parent and sister companies of HotelNewsNow.com, respectively.
Profitability is up 15.7% compared to 2010, Hoyt added.
Source: STR Analytics
Profitability for the industry in general during the past 10 years has moved consistently among the chain-scale segments. After a steady return during the years following 9/11, the industry began declining in profitability during 2006, reaching a trough in 2009.
The luxury segment—typically the first in and out of recessions—fell the furthest, decreasing 51% during the downturn, said Caitlyn Milton, business intelligence manager at STR Analytics.
However, as the industry began climbing toward recovery during 2010, the luxury segment led with a 33% increase in profitability.
The economy segment, meanwhile, saw the strongest translation of revenues into house profit, or profit before deductions for fixed charges and management fees. The chain scale recorded 42.3% profitability during 2011, following by the midscale segment at 27.1%.
Luxury was the least profitable at 15.7%. However, the segment posted a 41.5% increase in profitability compared to the prior year—which Hoyt said is because of the segment’s total dollar volume. That is, a small increase in luxury profitability equates to a much larger actual dollar value.
Profits by market
Most markets saw profit increase 5% to 15% nationally during 2011, Hoyt said.
Southern California, Oklahoma and parts of Florida saw increases of more than 20%. Only Kentucky saw a decline in excess of 25%.
North Dakota, the beneficiary of a booming shale oil industry, is seeing tremendous increases in profitability within the midscale segment, especially, Milton said.
“Many hotels have reported that maybe two or three nights of each month they have maybe one available room,” she said.
The market also is posting the largest monthly gains in revenue per available room, Milton added.
Among the top 25 U.S. markets, only Atlanta and Norfolk, Virginia, recorded negative profitability during 2011. The latter is suffering from a lot of new supply entering a market already over saturated, she said.
On the other end of the spectrum, Dallas, Detroit and San Francisco are showing the largest increases in profitability. But whereas the first two cities are simply clawing back from such significant declines during the downturn, San Francisco already surpassed its previous peak, Milton said.
Source: STR Analytics
Age matters
The age of an asset plays an important role in the ability to generate profits, Hoyt said.
Somewhat counter intuitively, however, it is older assets that generate higher profits. Hotels of up to 14 years in age, for example, recorded average profits of $1.98 million during 2011. Properties more than 74 years old recorded average house profits of $8.43 million.
Source: STR Analytics
But looking more deeply into individual segments, the numbers are less consistent.
The upper-upscale segment, for example, was the oldest with an average asset age of 26 years and average house profit of approximately $7 million. The average luxury asset was a year younger but posted house profits of nearly $10 million.
“Age is just one factor in terms of house profits,” Hoyt concluded.
