STR’s Ali Hoyt takes a dive into monthly P&L data for the U.S. hotel industry for a look at profitability in the COVID-19 environment and how expenses have shifted.
DENVER—Profitability in a pandemic might seem like a far stretch, but data from STR shows slight improvements have appeared in some key profitability metrics in recent months.
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During the “P&L overview: Is profitability possible during the pandemic?” session at the online Hotel Data Conference, Ali Hoyt, senior director of consulting and analytics at STR, provided key takeaways from annual profit and loss statements, which have been collected for more than 30 years, to better understand the overall health of the U.S. hotel industry. STR, parent company of HNN, launched its monthly P&L program in early 2020.
“Now it’s more important than ever for us to access to this monthly data to track to profitability recovery month by month,” she said.
The latest analysis looks at total U.S. hotel industry statistics for year to date ending June 2020. Total revenue per available room (TRevPAR) decreased 50% and gross operating profit per available room (GOPPAR) declined 75% for this year-to-date period, she said.
“What we saw when we looked at the monthly numbers is that April truly was the trough in profitability performance,” she said.
Despite the severe declines—“the worst that we’ve seen in the industry on a monthly basis,” she said—the June data showed slight improvement.
In June, the decline in GOPPAR improved roughly 10 percentage points over May, she said.
STR examined profitability levels from previous recessions, which showed declines generally 1.5 times the rate of revenue declines, Hoyt said.
In May data, full-service hotels showed profitability declines that were 1.6 times RevPAR declines, while limited-service hotel profitability declined 1.4 times RevPAR declines, she said.
“This means that hoteliers are doing truly the best that they can in this environment to manage expenses during this very difficult time,” she said.
Limited service versus full service
Hoyt said limited-service hotels have fared “relatively well” in profitability over the past couple of months, and there are a few reasons for that.
“First, limited-service hotels typically achieve a higher profit margin than full-service hotels by about 10%. Second, these two product types are relying on different demand bases. Limited-service hotels primarily attract that leisure transient guest, with full-service hotels far more dependent on group business and corporate transient,” she said.
Full-service hotels in June recorded almost a $20 increase in TRevPAR to reach levels similar to that of limited-service hotels. However, full-service hotels are still not achieving positive profit on a per-available-room basis, she said.
As demand has increased during the past few months, revenue declines have softened across the P&L statement, Hoyt said. Demand was down 70% in June 2020 compared to 2019, and revenue was down roughly 80%.
Food-and-beverage departments, however, have not shown improved profitability.
“Food revenues remain 90% below last year’s levels; other F&B revenue down 104%. Since April, other F&B revenues have been negative,” she said. “This line item includes meeting space rental, F&B service charges and AV equipment rental.”
As groups canceled bookings to due the pandemic, hotels had to process some refunds. These cancellations resulted in the negative revenues for the other F&B line item in the P&L statement, she said.
Operational changes during the pandemic have included additional or enhanced cleaning programs.
Compared to June 2019, full-service hotels spent an additional $11 per occupied room on cleaning costs, Hoyt said.
“We know that 20% increase from last year means that the housekeeping staff is spending more time and cleaning supplies on cleaning each and every room,” she said.
Limited-service hotels show a little bit of a different story, with an $8 per occupied room decline in rooms expense. She said one reason for this is that limited-service hotels are operating more closely to an extended-stay model and cleaning rooms for stay-over guests less frequently.
STR examined breakeven occupancies in the June monthly P&L and found that while full-service hotels in June did not turn a profit in aggregate, there were still some sets of full-service hotels that were able to find a way to profitability, she said.
“Those full-service hotels in that 50% to 60% occupancy bucket saw a 38% gross operating profit margin and 23% net income,” she said. “Limited-service hotels typically have a lower breakeven point in that 40% to 50% bucket.”