According to a recent report from Smith Travel Research, 2005 was very good to the U.S. hotel industry, which reached $22.6 billion in profits. In fact, it was the most profitable year the industry has ever had, including the year 2000, during which the industry scored a then-record $22.5 billion in profits. Compared to 2004 every metric grew, including average daily rate (up 5.4 percent), occupancy (up 2.9 percent), (up 8.5 percent), and total industry revenues (up 7.9 percent).
This highwater mark is expected to continue, despite energy, labor, and insurance increases, according to Randy Smith, STR founder and CEO. In a press release STR president Mark Lomanno notes that profits as a percentage of revenue actually were lower than the 2000 profit margins, but the strong room demand—for the first time, more than 1 billion room nights were sold last year—helped to increase the bottom line. Groups and business travelers accounted for much of this increase in demand for 2005, and STR expects that trend to continue. Coupled with a slowdown in new supply, STR projects that hotels will continue to raise both occupancies and rates.
The 2006 edition of Trends in the Hotel Industry, released by PKF Hospitality Research, also hails the 15.5 percent increase in profits in 2005, which follows 2004’s double-digits. But, like STR, PKF cautions that, while demand and revenue are growing, so are operational expenses—up 6.5 percent from 2004 to 2005. Labor is the largest piece of the operational expense pie at 44.6 percent, followed by management and franchise fees, property taxes, insurance, and utilities. However, the PKF report says, while it was mainly larger hotels who reaped the profits in 2004, everyone—defined as full-service, limited-service, convention, all-suite, and resort properties--saw double-digit increases in profits in 2005.