May P&L data shows improvement from April lows
 
May P&L data shows improvement from April lows
01 JULY 2020 8:22 AM

Insights into STR profit-and-loss data for the U.S. hotel industry include revenue gains for hotels in some top markets, as well as in the limited-service segment.

BROOMFIELD, Colorado—Data from STR’s Monthly P&L report shows that May profitability performance was once again very poor. However, the results also show incremental improvement for the hotel industry and provide some encouraging signs for specific U.S. markets and industry segments.

(STR is the parent company of Hotel News Now.)

1. May revenues and profits improved.
May performance was no doubt awful again, but April was the bottom for hotel performance and the new baseline for the recovery. In May, total revenue per available room (TRevPAR) and gross operating profit per available room (GOPPAR) declined 88% and 110%, respectively, from May 2019. That’s somewhat of an improvement from April (-93% and -117%). The May figures were actually up $11 in TRevPAR to $29, and up $8 in GOPPAR (though GOPPAR remained negative at -$10).

Phoenix, Los Angeles and San Francisco fared best of the top markets with TRevPAR gains of $16 to $18 over April figures. Los Angeles and San Francisco turned those revenue gains into even larger GOPPAR gains of $28 and $21, respectively.

2. Limited-service hotels figuring out how to remain profitable.
Limited-service hotels have fared much better than full-service for a variety of reasons. One reason is that limited-service hotels typically have around 10% higher profit margins than full-service hotels. However, the main reason for limited-service hotels outperforming full-service is stronger demand coming from the leisure transient segment than from groups and corporate transient.

In May, economy hotels nearly reached 50% occupancy, while average occupancies weakened for each subsequent chain scale. These higher occupancies have helped keep some limited-service hotels from suffering losses. Limited-service hotels with occupancies between 40% and 50% averaged net income profits of 6% of total revenues. The limited-service hotels with higher occupancies performed even better. Keep in mind these profit margins are based on major revenue declines and reduced operations, but these hotels have found a way to operate efficiently with limited demand.

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

3. Group hotels are struggling without group demand.
Group demand (-88%) dropped much more than transient demand (-72%) in May, compared to last year. Group hotels, typically with 400 or more rooms and considerable meeting space, have struggled greatly because of this. These hotels generate substantial revenues from their meeting space, which show up in the food-and-beverage department on the P&L.

In May 2019, full-service hotels with more than 50,000 square feet of meeting space generated 43% of revenues from F&B and other departments. In May 2020, that ancillary revenue made up 25% of total revenues, with only 6% coming from F&B.

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

4. Staffing levels mirror demand levels.
In our tracking of full-time equivalent employees, we noticed the May employment levels are very similar to pre-pandemic levels on a full-time-employees-per-occupied-room basis. Essentially, this means demand and staffing levels have declined proportionately.

In March as the pandemic was still unfolding in the U.S., demand levels had fallen much lower than staffing levels. Since then, reductions in staffing levels have stabilized in proportion to the reduced demand levels.

This is a positive sign for the industry, as the most recent weekly data shows increased demand throughout much of the country. As demand increases, those staffing levels will need to keep pace to remain in balance.

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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