Hotels See Record Revenue--But Slowing Growth

Michael Tucker mtucker@mba.org

May 11, 2017


U.S. hotel industry revenue reached a record $199 billion last year, up $9 billion from 2015, reported STR, Hendersonville, Tenn. But revenue growth fell significantly.

"Inflation-adjusted revenues topped the previous peak, and real house profit levels were the second-highest we've seen," said STR Director of Financial Performance Joseph Rael. "However, in the past year, we've also seen revenue growth slow considerably throughout the country. With revenue per available room growth forecasted below 3 percent for the next couple of years, we only expect modest profit increases in the short term."

STR noted that hotel revenue growth decreased by nearly 45 percent, increasing 4.5 percent last year after rising 8.1 percent in 2015.

R. Mark Woodworth, Senior Managing Director with CBRE Hotels, Atlanta, noted that hotel operators maintained profitability by limiting the operating expense growth to just 1.6 percent last year. "The competitive market conditions faced by U.S. hotels in 2016 have been well documented," Woodworth said. "Clearly, U.S. hotel operators saw the threat of stagnant or declining occupancy and slow average daily room rate growth and reacted by controlling expenses. The 3.7 percent increase in profits is the lowest we have observed since the Great Recession, but was a commendable accomplishment given the upward pressures on labor and distribution costs."

STR also analyzed same-store rates of change for nearly 5,000 hotels. It found that full-service hotel gross operating profit grew 2.9 percent while limited-service hotels saw only 0.8 percent gross operating profit growth. Upper-upscale hotels showed the greatest profit increases with 3.6 percent growth while midscale/economy class hotels showed the lowest profit gains, just 0.3 percent.

Looking ahead at hotel reservations, TravelClick, New York, said average daily room rates are "holding strong" in both the second and third quarters of 2017 despite declines in committed occupancy.

"Despite a reduced spring-summer booking bounce, rates have managed to remain steady during the first half of 2017, which is music to hoteliers' ears," said TravelClick Senior Industry Analyst John Hach. "While this may not represent a lasting trend, there is some positive news in the data that could indicate more growth across the board moving forward."

TravelClick said third-quarter room rates for group travel are up 4.5 percent despite bookings being down nearly 6 percent. Average room rates are up 1.9 percent across all segments for the same quarter though bookings are down 4.3 percent overall for the quarter.

"Without any evident trends set in stone for 2017, hoteliers must focus on differentiating themselves within their local markets by using business intelligence tools to tackle inconsistencies in the numbers during this time," Hach said. "There are many factors that could ultimately affect the health of the hospitality industry at any given time. Forward-looking data is the key to understanding the marketplace and making the right business decisions for any hotel."

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