Big profit hit for most, but not all US hotels in April
Big profit hit for most, but not all US hotels in April
02 JUNE 2020 8:21 AM

STR’s monthly profit-and-loss report shows the effects the first full month of the coronavirus pandemic had on the U.S. hotel industry.

BROOMFIELD, Colorado—The profit losses to the U.S. hotel industry in April were as bad as expected, considering the revenue declines and lack of demand due to the COVID-19 pandemic, but the results still hold some surprises.

STR’s Monthly P&L program, in its second month of reporting, offers insights into the first full-month of COVID-19 impact on the U.S. hotel industry.

1. Food and beverage operations have disappeared
Food revenues declined 97.7% and beverage revenues declined 98.6% in April, compared to April 2019. That’s somewhat to be expected, since demand declined 84.9%. However, on a per-occupied room night basis, food revenue declined from $61.67 last year to $13.83 POR this year, indicating food spend of actual guests was only 22% of last year’s level.

This is more of an indication of unopened hotel restaurants and meeting space facilities than actual spend, however. Many full-service hotels have left F&B operations closed, while opting for room service or grab-n-go. This is also happening with other amenities and departments, meaning large, full-service hotels are operating effectively as limited-service.

Source: STR, © 2020 CoStar Realty Information, Inc.

2. Other F&B revenue turns negative
Other F&B revenues include revenue from meeting space rentals, audiovisual equipment rental and F&B service charges. This department is heavily dependent on meetings and group business.

In April, these revenues declined 104.2%, for a loss of $7.28 per occupied room night. We know that group demand has dried up industrywide, but a large number of hotels reported negative revenues in this department. This is a result of group cancellations and hotels having to refund deposits.

3. Reduction in labor costs show impact of scaled-down operations
Labor costs declined 73% on revenue declines of 93%. Typically, labor costs have declined at half the rate of revenues in previous downturns—for example, a 93% decline in revenue would roughly equate to a 46.5% decline in labor costs.

The magnified decline in labor costs illustrates the impact of mass-furloughed employees, as well as the bare-bones operations throughout the industry.

4. Wage costs dip below benefit costs
Typically, payroll benefits (including payroll tax) make up 25% to 30% of labor costs. In April, benefits actually exceeded wages, accounting for 52.7% of total labor costs.

This again illustrates the impact of the furloughs, where wages have been significantly reduced while maintaining employee benefits.

5. Some limited-service hotels were actually profitable
Only 19% of full-service hotels turned a profit in April, but a decent amount (35%) of limited-service hotels were profitable in terms of net income. Net income accounts for fixed expense, reserve for replacement and owners’ expense.

Source: STR, © 2020 CoStar Realty Information, Inc.

The majority of hotels that were profitable in April achieved occupancies of more than 50%. Generally, these hotels still saw significant declines in revenues, but managed to stave-off losses through reduced operations and cost-cutting measures. Average occupancy for economy hotels the week ending 23 May was 49.4%, an encouraging sign for limited-service hotels moving forward.

Joseph Rael is the Senior Director of Financial Performance of STR’S Consulting & Analytics division.

This article represents an interpretation of data collected by STR, parent company of HNN. Please feel free to comment or contact an editor with any questions or concerns.

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