Hotels Scrape Out Profit Growth in January Amid Coronavirus Concern

LONDON—U.S. hotels eked out a 0.6% year-over-year increase in GOPPAR in January, but as the full scope of the coronavirus virus becomes clearer, subsequent months could put pressure on hoteliers to generate both top- and bottom-line growth, according to HotStats.

Revenue, too, was up in the month, as rooms RevPAR grew 2.7% YOY on the back of an increase in average rate (up 1.1% YOY) and occupancy (up 1 percentage points). Positive revenue growth in F&B pushed total revenue to a 3.2% YOY increase, as non-rooms revenue grew 3.9% YOY.

Still, hoteliers had trouble with flow-through, evidenced by the smaller increase in profit of only 0.6%. This came as a result of a jump in expenses, led by a 5.3% YOY increase in total labor costs on a per-available-room basis, which raised its percentage of total revenue by 0.8 percentage points to 40.8%. In the rooms department, total costs in the month moved 4.5% higher than the previous year.

Hoteliers had difficulty keeping undistributed expenses down. On a per-available-room basis, A&G costs were up 6.5% YOY, I&T costs were up 3.7% YOY and sales & marketing costs were up 6.1% YOY. Property & maintenance costs were the only ones to come down, at 0.5% YOY, inclusive of a 3.7% YOY decrease in utilities.

The sharp expense growth led to profit margin sinking 0.8 percentage points in the month to 28.9%.

While the news was at least positive for the total U.S. in January, the same can’t be said for New York City. A city that is already negatively impacted from oversupply will now contend with the likely reduction in the number of foreign travelers, especially Chinese travelers, due to fear and travel restrictions brought about by the coronavirus.

In January, revenue wasn’t the issue, according to HotStats. It’s the bottom line where hoteliers felt the sting. Rooms RevPAR was only up slightly YOY, at 0.3%, while TRevPAR increased 1.7% YOY on the back of stronger F&B returns.

Additionally, HotStats reported, hoteliers actually lost money in the month. GOPPAR came in at -$22.93 for January, which is 14.7% more negative than the same time a year prior when GOPPAR was -$19.99. Profit margin was down 1.1 points to -9.3%. Any revenue from the top line was gobbled up by expenses, including labor costs, which jumped 3.5% YOY. Rooms expenses jumped 3.7% YOY, while undistributed expenses were up, too, including A&G, at 4.1% YOY, on a per-available-room basis.

Houston, on the other hand, had no issue generating hotel profit in January. GOPPAR grew 10.4% YOY as rooms RevPAR shot up 11.8% with gains in both occupancy (up 3.8 percentage points) and average room rate (up 5.2%). Total revenue climbed 8.9% YOY, as non-rooms revenue increased 4.4% YOY. On the expense side of the ledger, labor costs moved up 8.1% YOY on a per-available-room basis, but the strong growth in revenue resulted in labor cost as a percentage of total revenue actually coming down 0.2 percentage points to 33.9%. Total expenses on a per-occupied-room basis were up 0.3% YOY. The strong growth in revenue led to profit margin rising 0.5 percentage points to 35.4%.