As summer heated up, so did US hotel profitability
As summer heated up, so did US hotel profitability
03 AUGUST 2020 8:05 AM

Gross operating profit per available room improved for the first time since April at U.S. hotels, as the economy segment continues to lead all others in profitability.

BROOMFIELD, Colorado—Data from STR’s Monthly P&L Program continues to show incremental improvement for the U.S. hotel industry. However, rooms expenses are starting to grow as new cleaning standards are enacted.

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

Here are four takeaways from the latest P&L data, for June.

1. Full-service rooms expense up 20.5% with added cleaning costs
Hotels are having to operate differently during the pandemic and with that comes enhanced cleaning standards to help prevent the spread of the coronavirus.

Housekeeping staff is spending more time, effort and supplies on cleaning rooms, which leads to an inevitable increase in rooms expense. This additional cleaning is costing full-service hotels almost $11 more per occupied room night, a 20.5% increase, compared with June 2019.

Most of the increase in costs is tied to labor, meaning housekeeping staff is spending more time cleaning rooms than they did in 2019.

To the contrary, limited-service hotels are reporting a decrease in rooms expense, down $8 per occupied room night from June 2019. One reason is that limited-service hotels have moved to a more extended-stay model, cleaning rooms less often for stay-over guests.

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

2. Full-service hotels make way towards profitability
Full-service hotels have been struggling more than limited-service hotels because of the dependency on group business. However, in June, total revenue per available room (TRevPAR) for full-service hotels improved by nearly $20, finally catching up to limited-service hotels.

Although full-service hotels as a group are still reporting negative gross operating profit per available room (GOPPAR), some full-service hotels were able to break-even when they hit 50% occupancy levels. Full-service hotels with occupancies between 50% and 60% averaged net income profits of 23% of total revenues. With demand at full-service hotels slowly beginning to return, some were able to generate revenues and find a path back to profitability.

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

3. Class segments show reverse pattern during pandemic
In a typical month, luxury hotels pull in the most revenues and realize the highest profit levels of any other class. In June 2019, luxury class hotels recorded TRevPAR of $409 and GOPPAR of $149, whereas economy class hotels had TRevPAR of $123 and GOPPAR of $67. However, during the pandemic, the opposite has been true. Economy hotels in June 2020 generated the most profit, and profits are incrementally smaller for each subsequent class.

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

4. GOP declines continue to improve
April has so far been the bottom for hotel performance in the U.S. and since then, profits have been incrementally improving. This was the first month we started to see double-digit improvements in GOPPAR. In June, GOPPAR was down 105.4%, which is a 10.5-percentage-point improvement from the previous month.

Of the top U.S. markets, Tampa/St. Petersburg, Florida, and Anaheim/Santa Ana, California, were the only two with significant improvements in GOPPAR.

The Tampa market recorded TRevPAR of $116.26 with GOPPAR at $34.51, and Anaheim was just behind with TRevPAR of $109.65 and GOPPAR of $28.26.

There were still only four markets that were profitable on average. The other two, San Francisco and Dallas, recorded GOPPAR of $2.70 and $3.29, respectively.

Raquel Ortiz is assistant director of financial performance at STR. STR is the parent company of Hotel News Now.

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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