Payroll puts increasing pressure on profit performance at US hotels

Hotels in the USA recorded a 1.2-percent increase in GOPPAR this month, but further potential growth was hindered by the 2.0-percentage point increase in Labor costs, according to the latest worldwide poll of full-service hotels from HotStats.

Year-on-year growth in top line performance at hotels in the USA was steady this month, with a 0.6 percentage point increase in room occupancy combined with 0.5-percent increase in achieved average room rate, contributing to the 1.2% year-on-year growth in RevPAR, to $167.76.

The growth in Rooms revenue, as well as increases in revenue in the Food and Beverage (+3.9-percent) and Conference and Banqueting (+4.2-percent) departments, supported a 5.3-percent increase in TrevPAR.

Profit & Loss Key Performance Indicators – USA (in USD)

June 2017 v June 2016
RevPAR: +1.2% to $167.76
TrevPAR: +2.4% to $261.56
Payroll: + 2.0 pts to 33.8%
GOPPAR: +1.2% to $101.77

However, in addition to an increase in non-direct Payroll levels (ie Sales and Marketing, Admin & General and Maintenance), hotels in the USA recorded increases in Labor costs in the Rooms (+4.4-percent) and Food and Beverage (+13.7-percent) departments on a per available room basis.

As a result of the movement, Labor costs for the month were recorded at 33.8-percent of total revenue, a 2.0-percentage point year-on-year increase from the same period in 2016.

“Currently, the growth in Labour costs at hotels in the USA 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 situation is more acute in months when performance slows, as illustrated by hotels in Washington DC in June. As TrevPAR fell by 3.7-percent, to $326.76, Payroll levels soared to 35.9-percent of total revenue.

The 3.4-percentage point increase in Payroll levels seemingly directly attributed to the 2.3-percentage points drop in profit conversion, which fell to 40.6-percent of total revenue this month.

Profit & Loss Key Performance Indicators – Washington DC (in USD)

June 2017 v June 2016
RevPAR: -2.0% to $220.21
TrevPAR: -3.7% to $326.76
Payroll: +3.4 pts to 35.9%
GOPPAR: -9.0% to $131.21

Tourism is thriving in the nation’s capital with a record number of US visitors in 2016, which, broadly speaking has been to the benefit of top line performance with hotels recording a 10.5-percent increase in RevPAR in the 12 months to June 2017, to $197.28.

However, the ongoing increase in Labor costs will challenge profit levels and presents a realistic concern for owners and operators.

“The minimum wage in Washington DC increased from $10.50 per hour to $12.50 per hour on 1 July, this is equivalent to a 19-percent increase and will then incrementally increase to reach $15.00 in 2020. For an industry which is heavily reliant on minimum wage employees, this will surely impact hotel profitability,” added Pablo.

In contrast to the performance of hotels in the capital this month, properties in Dallas performed well, recording a 10.2-percent year-on-year 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 (+19.7-percent) and Conference and Banqueting (+27.6-percent) on a per available room basis.

Despite key metrics being well below national averages, exemplified by RevPAR at $109.06 in Dallas in June, compared to the US average of $167.76, hotels are able to maintain robust profit levels, recorded at 39.8-percent of total revenue this month.

This is, in part, due to the low minimum wage for Texas, which is currently in line with the federal minimum at $7.25 per hour, with no scheduled increases. For hotels in Dallas, this translates to Payroll levels of just 31.4-percent of total revenue for the month, against the national average of 33.8-percent.

Profit & Loss Key Performance Indicators – Dallas (in USD)

June 2017 v June 2016
RevPAR: +3.2% to $109.06
TrevPAR: +10.2% to $211.40
Payroll: +2.3 pts to 31.4%
GOPPAR: +10.0% to $84.18

Glossary:

RevPAR = Revenue per Available Room
TrevPAR = Total Revenue per Available Room
GOPPAR = Gross Operating Profit per Available Room