US P&L takeaways: Full-service struggled in September
 
US P&L takeaways: Full-service struggled in September
10 NOVEMBER 2020 8:51 AM

Total revenue per available room and gross operating profit per available room did not change much in September for U.S. hotels, but the limited-service segment continues to outperform the full-service segment.

NASHVILLE, Tennessee—Overall, U.S. hotel profitability did not see significant changes in September.

Compared to August, total revenue per available room (TRevPAR) rose to $68.58, however with expense growth relatively flat, the result was just over one dollar of growth in gross operating profit per available room (GOPPAR).

Unfortunately, gross-operating-profit margins declined slightly from 12.4% to 11.9%, while on a more positive note, earnings before interest, taxes, depreciation and amortization margins became slightly less negative, moving from -12.5% in August to -10.3% in September.

Year-to-date declines were larger than what we saw in August, and with TRevPAR roughly 40% of what it was in 2019, GOPPAR is down 80.5% to $18.35. Year-to-date EBITDA is hardly positive, producing just $1.26 per available room.

Here are four takeaways from the U.S. September P&L data.

1. Lack of group demand continues to weigh heavily on F&B revenues in full-service hotels.
Overall, food revenues per occupied roomnight (POR) are less than 40% of what they were in September 2019. As we move into the fall season, normally full of conferences and other events that drive group demand, the lack of demand is becoming more evident with other F&B revenues continuing to fall 101% compared to last year. Specifically, food catering and banquets revenues are heavily impacted, with less than $5 POR as compared to nearly $32 POR last year. Looking at these revenues in terms of meeting space, hotels are only generating 6% of what they did last year per square foot.

Without driving demand and increasing total revenues, hotels that rely heavily on group business struggle to become profitable. Many of these group-dependent hotels fall into the upper-upscale class, which saw the lowest GOPPAR of all the classes at only $3.61 in September.

2. More markets become profitable.
The number of top markets with a positive GOPPAR continues to show a steady increase. The last few months the number of top markets with positive GOPPAR has increased by two markets per month. From August, this jumped up four markets for a total of 12 markets with positive GOPPAR in September.

Many of these markets have the drive-to destination factor that include coastal areas, such as San Diego or Miami, or areas within close proximity to extensive national parks, including Denver and Phoenix, and have been become increasingly popular since the beginning of the COVID-19 pandemic. Small metro/town and interstate locations within these types of markets have weathered the pandemic better and see higher TRevPAR and GOPPARs than heavily urban markets, such as New York City. Urban location hotels continue to be the only location type with negative GOPPAR, losing an average of $2.01 per available room as of September.

3. Labor costs make up 47% of total revenues.
Despite total labor costs down 61.5% year over year, nearly half of all revenues go toward labor costs. Typically representing closer to 40% of total revenues, these ratios are inflated due to the decrease in total revenues (-71.9%).

While the other departmental expenses continue to become increasingly less negative each month, F&B labor continues to see the largest year-over-year decline, down 73.5% from 2019. As mentioned previously, this decrease is largely attributed to loss of group demand that generates large F&B revenues. The ratio of salaries and wages to benefits continue to follow a more typical pattern this month, with wages just over 65% and benefits just over 34% of total revenues, the opposite of what we saw earlier this year as furloughs and layoffs began to take place.
4. Limited-service hotels outgained full-service hotels in profit generated in September.
Limited-service hotels have shown to fare far better during the recent difficult months than their full-service counterparts. Despite TRevPAR in full-service hotels increasing by $13, these hotels were only able to produce an increase of approximately $2 in September, for a total of $6.53 GOPPAR. Limited-service hotels, however, generated 2.5 times the GOPPAR of full-service hotels. The revenues full-service hotels achieved in September were only 27% of what they were last year, while limited-service hotels, still underperforming, were able to capture 45% of their previous revenues. This allowed limited-service hotels to capture 29% of September 2019 GOPPAR for $16.56, while full-service hotels only captured 6%.

Audrey Kallman is an Operations Analyst at STR.

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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