pkf's blog

Spa profits increased greater than the average growth for all departments

It is commonly understood that spas were once an afterthought for operators of hotels and resorts. Yet as living a healthy and better lifestyle has become one of the population's top priorities, spas have grown in popularity and are viewed as essential elements to a hotel or resort's success rather than being just a luxury.

PKF Research Says Meeting Planners Resigned To Seller’s Market, Hotel Managers in Good Negotiation Position

Given the strength of the U.S. lodging market, it is no surprise that meeting planners appear to have accepted the fact that it is a seller’s market. Meeting planners have not abandoned their efforts to control their budgets. However, rising room rates, attrition clauses, and second-tier cities are no longer the “hot button” issues they once were.

Yes, the improving fiscal health of corporations and associations has put less pressure on meeting planners to curb their costs. However, based on our analysis of the attitude of meeting planners, as well as our discussions with hotel sales personnel, the expected shift in bargaining power from buyer to seller is well in evidence in 2007.

Editor's Note: The USALI is the standard for hotel accounting.  Hotel owners, operators, accountants, consultants, analysts, educators, attorneys, lenders, and investors all rely on it as the “common language” for hotel financial statements and statistics. This article that discusses recent guideline changes has been added to the franchise encyclopedia as a resource for lodging owners and staff.

Major Changes of 10th Edition

The Financial Management Committee of the American Hotel and Lodging Association (AH&LA), in conjunction with the Hospitality Financial and Technology Professionals (HFTP), published the tenth edition of the Uniform System of Accounts for the Lodging Industry (USALI) in the fall of 2006.  The first edition of the USALI was published in 1926 by the Hotel Association of New York City.  The purpose of the first USALI was to establish a uniform responsibility accounting system for the lodging industry.

October Research Shows Need To Capture More Dollars Per Room Instead of Selling More Nights

As the industry enters what is projected to be an extended period of moderate, yet sustained growth for the next few years, expect to see the investment in unit-level marketing expenditures start to level off.  Historically, marketing expenses grow at a greater pace than total revenue during recessionary periods and the following years of recovery.  Industry owners and operators realize the need to “spend money in order to make money.”

Conversely, we have observed that the annual growth in marketing department expenditures tends to revert to the long-term average of 2.7 percent during periods of prosperity.  During the past few years, we have seen the annual investment in marketing drop from 6.1 percent in 2004 to 4.3 percent in 2006.  The result has been a gradual decline in the ratio of marketing expenses to total revenue from 4.7 percent in 2004 to 4.5 percent in 2006.

A familiar pattern repeated itself in 2006 – strong gains in hotel revenues surpassed significant expense growth, which resulted in double-digit increases in unit level hotel profits. In 2006, the average hotel manager in our Trends in the Hotel Industry survey achieved a 13.3 percent gain in operating profits, the third consecutive year of bottom-line increases in excess of ten percent. Favorable supply / demand conditions allowed these operators to enjoy an 8.2 percent jump in revenues for the year. However, management continued to struggle with burgeoning costs. Hotel operating expenses grew 6.3 percent in 2006, the third consecutive year of expense growth nearly twice the pace of inflation.

Hotel Managers Have Been More Successful Over the Past Few Years in Managing Receivables Because of an Increase in the Use of Credit Cards

Like other industries, lodging operations often extend credit to customers in order to gain their business. For hotels, permission to pay after services have been provided is most often granted to large groups and preferred corporate accounts. For transient guests and non-preferred groups and companies, credit must be established up front either by paying a cash deposit or using a credit card.

Franchisees Facing Profitability Challenges as Increasing Costs and Competition Interface with New Room-Rate Growth Squeeze

In the past two decades, hotel managers have made money differently than other businesses. Lodging is an industry that has benefited from its ability to increase prices to offset sharp gains in operating expenses. This contrasts the typical U.S. business model of increases in productivity and modest price increases.

Looking towards the future, we are starting to observe two trends that could affect the growth of hotel revenues. The hotel construction pipeline is at an all-time high, and more projects are starting to move from the planning stages to actual construction. In addition, we are beginning to hear some rate resistance among meeting planners and corporate travel executives. Combined, these factors could mitigate the strong pace of revenue growth that U.S. hotels have enjoyed the past few years.

“We may not imagine how our lives could be more frustrating and complex--but Congress can.” - Cullen Hightower

Congress has been in session for a little more than 100 days.  Changes can be expected with the Democrats taking control.  They had a number of pet projects they wanted to address during this period.  It is expected that a flurry of bills, the low-hanging fruit, will be enacted to show that the Congress can be effective.  Most of the bills garnered Republican support although, ironically, the Republicans complained about being kept out of the negotiations on a number of them. 

It is the 109th Congress that has been busy passing tax legislation at the last minute that will impact the hospitality industry.  A session of Congress lasts only two years; however, the 109th outdid itself in the number of tax bills passed during its tenure.  The final bill, the Tax Relief and Health Care Act of 2006, was just one of seven significant tax bills passed during the last two years.  In addition, the Pension Protection Act (PPA) was passed during the summer. 

Getting Employees To Save

Measurements of Revenue and Profit Stability to Assist a Hotel Investor to Measure Risk

Economy, Midscale, and Luxury hotel sectors more predictable, less risky

A hot restaurant or trendy bar may provide some panache for a hotel.  Golf courses and spas are fun to operate and certainly popular with guests.  However, when all is said and done, it is renting and servicing guest’s rooms that drive the revenues and profits of hotels.