Like other industries, profits in the hotel business are achieved when revenues exceed the cost of operations. In 2015, there are several factors that will enhance the ability of hotel managers to control their operating expenses.
First, the pace of inflation is forecast to be a mere 0.6 percent according to Moody’s Analytics. This will help curb the growth in the cost of goods and services purchased by hotels, including utilities.
Second, PKF Hospitality Research (PKF-HR) is forecasting occupancy to increase by just 1.9 percent. This is less than the 3.6 percent pace of occupancy growth reported by STR in 2014. A deceleration in the increase of occupied rooms leads to a slowdown in the growth of variable expenses.
Third, wage rates are still projected to grow at a relatively modest pace while the national unemployment rate continues to decline.
Therefore, with the expense side of the profit equation seemingly under control, what bottom-line contribution can hotel owners and operators expect from their top-line revenues?
Posted by: Robert Mandelbaum and Jamie Lane