Growth in hotel expenses to slow in 2012
 
Growth in hotel expenses to slow in 2012
16 NOVEMBER 2011 7:34 AM

In putting together 2012 budgets, hotel companies appear to be focusing on renovations and sales and marketing efforts.

GLOBAL REPORT—Hotel expense growth is expected to slow in 2012, though companies are likely to beef up the renovations and sales and marketing line items on their budgets.

PKF Hospitality Research’s forecast for 2012 shows expense growth slowing to 4.4%, which is still slightly above the long-run average, said Robert Mandelbaum, director of research information services for PKF. The expense growth forecast for 2011 is 5.2%.

One reason for the projected decline in expense growth, Mandelbaum said, is hotel employees are becoming more productive despite tighter staffing levels. Labor comprises 47% of operating expenses, he said.

“Companies are asking employees to do more,” Mandelbaum said, adding, “Like all other industries, people are scared to hire new people.”

One way Fairmont Raffles Hotels International is increasing employee efficiency is via investment in technology, Fairmont’s COO Chris Cahill said.

The initiatives have been introduced throughout the company’s structure, including in finance/accounting, sales and marketing, and other areas, he said.

“It’s all designed to enhance our efficiency across our portfolio by allowing us to better manage … and to recruit more effectively and efficiently,” he said.

Greg Bryan, GM of the 250-room Best Western Grand Canyon Squire Inn in Tusayan, Arizona, said labor costs are always top-of-mind for his hotel.

“It’s always a big issue for us because we have a small population base and we have to bring in workers from out of the area,” he said. Oftentimes, these workers are at the hotel for as little as three months before moving on.

Sales and marketing
While expenses are pulling back, companies appear to be moving money to other areas of the budget. With the sector continuing its slow climb out of the downturn, sales and marketing is one area where companies see an opportunity to invest.

David Kong, president and CEO of Best Western International, said his company’s budget was put together based on a conservative 2012 forecast for the hotel industry. 

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David Kong
President and CEO of Best Western International

As such, his company plans to take advantage of the recovery by bolstering its sales and marketing efforts in 2012.

 

The company intends to increase its sales and marketing budget by 10% to US$65 million in 2012, Kong said earlier this month at Best Western’s annual convention that took place in Orlando, Florida. The company is also increasing its sales staff by 20%.

“Standing still is not an option” given the hotel sector’s landscape, he told convention attendees.

Renovations
Property renovations also look to be on the minds of hotel executives as increasing outlays for capital expenditures was a hot topic during third-quarter earnings conference calls.

John Murray, president of Hospitality Properties Trust, for one, said the company has began renovation planning and project scope meetings for projects to begin during the fourth quarter and 2012. The company has 12 hotels now under renovation, including nine Courtyard by Marriott properties and three Hyatt Place hotels.

CapEx has been a focus of the budget at Bryan’s Best Western. The property spent “several million dollars” in renovations to join the “Premier” level in Best Western’s descriptor program, Bryan said.

Improvements included new furniture, carpeting, lighting, and work on the landscaping around the hotel.

The upgrades have helped allow the hotel to lift its rate by up to US$10, Bryan said, which has helped offset expenses in his budget.

“Guests are very, very pleased with the upgrades,” Bryan said. 

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