US hotel profits at best level since start of pandemic
US hotel profits at best level since start of pandemic
27 AUGUST 2020 7:48 AM

The latest P&L data from STR shows that U.S. hotel profitability picked up in July as more segments started to record positive performance.

BROOMFIELD, Colorado—The middle of summer brought better hotel performance data than STR has recorded since the COVID-19 pandemic started in the U.S.

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

Gross operating profit margin was positive for the first time since March, and more U.S. hotel markets are now realizing positive gross operating profit per available room (GOPPAR).

Full-service hotels finally able to break-through to profitability
For the first time since February, full-service hotels were able to show positive GOPPAR in July. Although this was only GOPPAR of $3, it’s a long way from the days of -$25 GOPPAR. Moreover, full-service hotels started to break even at around 40% occupancy, and 46% of these hotels showed positive GOPPAR. In terms of net income, 30% of full-service hotels were profitable. Limited-service hotels do continue to outpace full-service in terms of GOPPAR, but both continue to show incremental improvements each month.

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

GOP declines highly correlated with room counts
Analyzing the July P&L data, we stumbled upon a very interesting relationship between number of rooms in a hotel and GOP year-over-year change. In more than 65% of hotels, the more rooms there are, the more negative the GOP year-over-year change. Thus, for each additional room a hotel has, it essentially lost $3,330 in GOP from last July. While that seems extreme, the GOP loss has improved since May.

All class segments now showing positive TRevPAR and GOPPAR
All classes showed positive GOPPAR in July for the first time since February. The luxury class had the highest total revenue per available room (TRevPAR) of all classes for the second month and improved TRevPAR by $26. In June, the luxury class had only a slightly higher TRevPAR than the economy class ($5 higher), but this month it was $43 higher. However, the economy class still has the highest GOPPAR of all classes at $23.

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

Labor cost contribution to wages and benefits more typical
With mass furloughs in the lodging industry over the past few months, we saw an inverse proportion between wages and benefits. In a typical month, wages account for around 70% of labor costs, but they have accounted for only 50% since March.

In July, labor costs returned to a more normal proportion with wages accounting for 67% of total labor costs. The reason behind this change is that more hotels are re-opening and thus employees have been able to return to work.

Small metro/town locations drastically improve TRevPAR
The highest absolute occupancy of all location types was recorded in small metros and towns in July. Coupled with ADR at $110, this led to TRevPAR doubling and a $86 improvement in GOPPAR from last month. Moreover, all location types, except for urban, realized positive GOPPAR in July. Urban markets have struggled because these hotels typically rely heavily on large groups and business travelers. However, urban hotels were able to improve both TRevPAR and GOPPAR in July, showing that they are getting some transient travelers.

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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