U.S. Hotel Guests Spend More to Rent Rooms

  • Published by Vedat
Now that the national hotel occupancy rate is approaching its long run averages and scarcity has returned in certain markets and property types, guests have to pay more to rent rooms.
hotel-op-perf12However, after the guests have checked in, managers are struggling to get them to spend more on the additional services and amenities offered by hotels. This finding comes from the recently released 2013 edition of Trends® in the Hotel Industry, the annual compendium of hotel operating statistics prepared by PKF Hospitality Research, LLC (PKF-HR) that dates back to 1937.

Based on a sample of operating statements collected from approximately 6,500 hotels during the 2013 Trends® survey, rooms revenue increased by a healthy 6.3 percent from 2011 to 2012; however, total hotel revenue grew by just 5.0 percent. This means that the combined revenue earned from food and beverage, other operated departments, and rentals and other income increased only 2.3 percent per available room (PAR), or a mere 0.5 percent when measured on a dollar per occupied room basis (POR).

"This finding is consistent with other research conducted by our firm," said R. Mark Woodworth, president of PKF-HR. "According to our annual survey of meeting planners for ConventionSouth magazine, as well as discussions with corporate travel planners, these professionals have reconciled that rising occupancy levels have led to more limited availability, thus requiring higher room rates. However, to keep control of their meeting and travel budgets, limitations have been placed on the amount conventioneers and business people can spend on ancillary services and amenities. We already have seen hotel owners and operators react to this trend by reducing the levels of food and beverage service at their properties, along with an enhanced focus on building select-service hotels."

Variable Costs Contained

Facing the challenge of boosting their revenue, hotel managers responded once again by controlling costs. Total hotel operating expenses for the properties in the Trends® sample increased by 3.3 percent in 2012, compared to the 4.3 percent rise observed in 2011. Because of the high degree of variable costs at hotels, part of the decline in the pace of expense growth can be attributed to the reduced rate of occupancy increases. Nonetheless, when measured on a POR basis, operators were able to limit expense growth to just 1.5 percent in 2012.

PKF-HR begins their analysis of expenses by looking at labor costs since they account for 45.3 cents of every dollar spent to operate a hotel. In 2012, total labor costs increased by 3.6 percent PAR, down from the 4.1 percent growth rate posted in 2011. "The slower growth of labor costs implies that managers monitored employee compensation closely during the year. In 2012, salaries and wages, the more controllable component of labor costs, increased by 2.9 percent, while payroll-related expenses rose by 5.4 percent. Many U.S. hoteliers are concerned that the accelerated rise in payroll-related expenses could be a foreshadowing of future escalation in government mandated taxes and benefits," said Woodworth.

Fixed Expenses Explained

"In general, undistributed expenses are considered to be largely fixed in nature. Therefore, at first glance, the 5.3 percent rise in sales and marketing expenses, along with the 5.0 percent increase in management fees for the Trends® sample, appear to be a cause for concern," said Woodworth. "However, the positive growth in revenue and profits helps to explain the rise in these two expense categories."

Franchise fees (considered a sales and marketing expense), as well as the bonuses for sales personnel, frequently are tied to changes in rooms revenue. Management fees almost exclusively are driven by changes in total revenues and profits, thus explaining the relatively strong increase in this expense item.

The greatest percentage change in an individual expense category was observed in insurance. The amount paid by hotels for property and liability insurance grew by 6.0 percent in 2012. According to the firm Swiss Re, 2011 saw the second greatest dollar volume of worldwide insured losses ever. It appears that the insurance companies needed to recoup their 2011 outlays by raising premiums in 2012.

On a positive note, utility costs declined by 3.4 percent from 2011 to 2012. "We attribute this reduction to the continued implementation of green and sustainable operating practices, the purchase of energy efficient equipment, and, according to the Bureau of Labor Statistics, a mere 0.9 percent increase in energy costs during the year," noted Woodworth.


Net Operating Income (NOI) for the average hotel in the PKF-HR Trends® sample grew by 10.2 percent in 2012. Resort hotels enjoyed the greatest gain in NOI (10.6%), followed by limited-service (10.6%) and full-service (9.8%) properties. Lagging in profit growth were convention hotels (5.7%), suite hotels with F&B (7.7%), and suite hotels without F&B (8.1%). Resort hotels benefited from the greatest increase in ADR, while convention hotels were impacted by the lag in the recovery of the group market segment.

For the Trends® report, NOI is calculated before deductions for capital reserves, rent, interest, income taxes, depreciation, and amortization.

Bright Future

Based on the March 2013 edition of Hotel Horizons®, PKF-HR is forecasting double-digit growth in NOI for U.S. hotels through 2015. Strong growth in ADR will be the main catalyst of bottom-line improvement, along with limited growth in expenses. Our outlook for restrained increases in expense growth is driven by Moody's Analytics' forecasts for modest increases in inflation, as well as subdued growth in variable operating costs attributable to the slowdown in the pace of occupancy gains.

"Managers will continue to be challenged to grow other revenues sources, especially since travelers will be offered an increasing inventory of select-service properties. Alternatively, owners will benefit from increases in the value of their properties resulting from improving profits," Woodworth concluded.

To purchase the 2013 Trends® in the Hotel Industry report, please visit

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