Finance & DevelopmentFinanceReport: Payroll Puts Pressure on U.S. Hotel Profit Performance

Report: Payroll Puts Pressure on U.S. Hotel Profit Performance

Full-service hotels in the U.S. recorded a 1.2 percent increase in GOPPAR in June 2017 and faced a 2.0 percent increase in labor costs during the same period, according to the latest HotStats report.

Year-over-year (YOY) growth in top line performance at U.S. hotels was steady in June, with a 0.6 percent increase in room occupancy combined with 0.5 percent increase in achieved average room rate, contributing to the 1.2 percent YOY growth in RevPAR to $167.76. The growth in rooms revenue and revenue from other departments—food and beverage revenue was up 3.9 percent and conference and banqueting revenue was up 4.2 percent—supported a 5.3 percent increase in total revenue per available room (TrevPAR) to $261.56.

However, payroll costs also rose in June along with RevPAR and TrevPAR, and were recorded at 33.8 percent of total revenue, a YOY increase of 2.0 percent. In addition to an increase in non-direct payroll levels (i.e. sales and marketing, administrative, general, and maintenance), U.S. hotels recorded increases in labor costs in rooms departments (up 4.4 percent) and food and beverage (up 13.7 percent) departments on a per available room basis.

“Currently, the growth in labor costs at hotels in the U.S. is seriously outpacing the growth in total revenue. In the 24 months to June 2017, Payroll has increased by 14.3-percent on a per available room basis, compared to the 6.8-percent increase in TrevPAR during the same period,” said Pablo Alonso, CEO of HotStats.

The difference is sharper in months when performance slows. For example, hotels in Washington, D.C. saw TrevPAR fall 3.7 percent in June 2017 YOY to $326.76 while payroll levels increased to 35.9 percent of total revenue vs. the national average of 33.8 percent. Hotstats attributes the city’s 3.4 percent increase in payroll levels to the 2.3 percent drop in profit conversion, which fell to 40.6 percent of total revenue in June. RevPAR fell 2.0 percent and GOPPAR fell 9.0 percent during that time period compared to last year. Still, tourism is thriving in the nation’s capital with a record number of U.S. visitors in 2016, which, may have benefited top line performance—hotels recorded a 10.5 percent increase in RevPAR in the 12 months to June 2017 to $197.28. Hotstats notes that the city’s minimum wage is rising—from $10.50 per hour to $12.50 per hour on July 1, with plans to increase the hourly minimum incrementally to $15.00 in 2020.

In contrast to the performance of hotels in the capital this month, properties in Dallas performed well, recording a 10.2 percent YOY increase in TrevPAR on the back of a 3.2 percent increase in RevPAR, which was thanks to growth in non-rooms revenues, including food and beverage (up 19.7 percent) and conference and banqueting (up 27.6 percent) on a per available room basis. However, Dallas’ key metrics still fell well below national averages (RevPAR was at $109.06 in June vs. the U.S. average of $167.76), but the city’s hotels are able to maintain robust profit levels, recorded at 39.8 percent of total revenue in June. Dallas hotel payroll is up 2.3 percent to 31.4 percent of total revenue in June vs. the national average of 33.8 percent. Hotstats notes that Texas hotels are at the federal minimum wage level—$7.25 per hour—with no schedule increases.