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Do Hotels Need to Sell More?

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.

Hotel Revenue Gains Overcome Expense Growth

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.

Hotels Collecting More Plastic and Less Doubtful Accounts

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.

The Future of Hotel Profitability

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.

Tax Benefits From Congress Impact Hospitality Industry


“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

How Predictable Is Hotel Financial Performance?

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

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

Rooms Department Sees Continued Increase in Profits

Research by PKF shows stronger hotel control over per-occupied-room expenses than per-available-room, while a rise in free food & beverage costs eat into profits

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.

Study Shows Resilience of Alternative Hotel Fees

PKF study shows alternative hotel fees are readily absorbed by guests. Such alternative revenue streams could be better managed during scarce peak hotel cycles. (See 3 slides below)

As the lodging industry goes through its cycles, the major sources of revenue (room, food, beverage) for U.S. hotels fluctuate dramatically.  For example, rooms revenues during the recent industry recession declined 16.1 percent from 2000 to 2003.  On the other hand, some of the “minor” revenue sources for hotels show more stability over the long term.  During the same 2000 to 2003 period, the combined revenue from Other Operated Departments and Rental and Other Income declined just 2.7 percent.  Given the relative consistency of sales generated by such outlets as health clubs, movie rental, parking, and commercial leases, managers can depend on these departments to provide the hotel with a more predictable source of revenue.

Hotel Marketing Becoming More Efficient

Hoteliers Stretch Advertising Dollars in '05 by Using Internet Technologies Trends in Hotel Marketing Expenditures: Click on the above chart to move to the next slide.

As sales expenses have continued astronomical growth, hotel advertising continues to decline as hotels discover how to use the Internet more efficiently, decreasing the cost in connecting with customers. From 2004 to 2005, the amount of money spent at the property level for promotional materials and media buys declined 0.7 percent. While the decrease is relatively low, it marks the sixth consecutive year of a downward slide.

2006 Trends in the Conference Center Industry

Impact of Institutional Ownership Evident

Conference centers in the United States enjoyed a year of tremendous growth in revenues and profits in 2005.  For the year, total revenue for these specialized lodging facilities increased 13.7 percent, while profits grew 39.2 percent.  A healthy economy, combined with disciplined management, contributed to the strong performance of this segment.  These observations come from an analysis of data collected in connection with the 2006 edition of Trends in the Conference Center Industry, published by PKF Consulting (PKF-C) in conjunction with the International Association of Conference Centers (IACC).