US hotels will rack up third consecutive year of double digit profits

The US lodging industry continues on a roll with the typical gross operating profit increasing by more than 13% in the first half of this year, according to a recent study.

But hotel managers are continuing to struggle controlling costs such as salaries and wages and employee benefits, says a study from PKF Hospitality Research (PKF-HR), an affiliate of PKF Consulting.

“Due to the strength of the economy, U.S. hotels posted healthy increases in occupancy and room rates during the first half of 2006,” said R. Mark Woodworth, president of Atlanta-based PKF-HR.

At the same time, PricewaterhouseCoopers forecasts that room night demand for the upcoming holiday period will increase by 2.6 percent over the prior year to a new record level of 2.39 million average occupied rooms per night before the end of the year. Why?
 

Said Bjorn Hanson, a principal:

“Lower gasoline prices, gains in personal income, expectations of favorable year-end bonuses, increased inbound international travelers and no events, such as last year’s hurricanes that could negatively effect hotel supply.”

Mr Woodworth said the outlook for industry profits was strong

While the resulting revenue gains are welcome, he added, a 7.8 percent increase in operating expenses is a continuing concern to hotel owners and operators.

Total hotel revenue grew 9.7 percent during the first half of 2006, the result of strong sales in most operating departments.

The survey sample averaged a 1.9 percent gain in occupancy, along with an 8.5 percent increase in average room rates (ADR). The net result was a 10.6 percent boost in room revenue, the main driver of total revenue.

Through the first half of 2006, limited-service hotels had greater gains in revenue and profits compared to full-service properties. During the first six months of 2006, limited-service revenues grew 11.1 percent. At the same time, full-service hotels saw their revenues grow 9.5 percent.

Due to the impact of Hurricane Katrina on industry performance during the fourth quarter of 2005, as well as a moderation in the nation’s economic growth, PKF-HR is expecting a slight slowdown in the pace of performance gains during the later part of 2006.

Said Mr Woodworth:

“The lingering Katrina and economic impacts on lodging industry performance during the fourth quarter of 2006 will result in annual revenue and profit gains somewhat less than those achieved during the first half of the year.”  

However, PKF-HR is still projecting that 2006 will mark the third consecutive year of double-digit profit growth for US hotels.

Report by David Wilkening