The world continues to deal with a pandemic that doesn’t want to subside. The hotel industry could use some breathing space.
According to July profit and loss data from HotStats, the global regions continue to accrue negative months of profitability, with Asia-Pacific the exception, after two consecutive months of positive gross operating profit per available room (GOPPAR).
And though global performance data is still well off from the year prior, there is room for celebration, with monthly strides being made in most key performance metrics.
As COVID-19 drags on, with some 24 million confirmed cases worldwide, hotels, especially in downtown urban markets, find themselves in a waiting game; meanwhile, properties in secondary and tertiary and resort markets have found some preliminary success, a sign that even the biggest pandemic in more than a century can’t quell travel altogether.
“The global hotel industry is far from recovered, but the proverbial light at the end of tunnel is out there,” said David Eisen, Director of Hotel Intelligence, Americas, HotStats. “Getting back to profitability will take a careful mix of revenue generation and expense control. In this current environment, we’ve seen, expectedly, both revenue and expenses come down. The hope is that on the way back up, revenue climbs and hoteliers continue to keep costs at bay, thereby ensuring quicker and more sustained profitability.”
Asia-Pacific continues to be a beacon of hope amid a sea of negativity. For the second consecutive month, the region recorded positive GOPPAR, a feat unmatched by the rest of the world on aggregate. GOPPAR climbed to $11.82, a 225% improvement on June, when GOPPAR was $3.63 – the first time the metric turned positive since COVID-19 tightened its grip in February.
Framed amid the pandemic, the scant amount of profit is cause for celebration, though reality is that GOPPAR in July is still 76.8% down versus the same month last year.
Total revenue per available room (TRevPAR) reached its highest mark since February, as room occupancy and average rate climbed, coupled with slight upticks in ancillary revenue, including a jump in food and beverage revenue, up 209% against April, when F&B RevPAR hit a low of $7.86.
Expenses continued their downward trend on a year-over-year basis. Total labor costs were down 44.6% YOY, while total overhead costs dropped 41.4% on a YOY basis. Profit margin for the month was up to 17.4% after falling into negative territory from March through May.
In China, where cinemas have been open since July 20, with reports of rising attendance, July was the third consecutive month of profit gains. GOPPAR, down 34.5% YOY, was up to $25, $10 more than June. Occupancy in the country climbed above 50% for the first time since December 2019, and with a slight uptick in rate, revenue per available room (RevPAR) was at a higher level than it was in January. TRevPAR made a big jump, up $15 over June and 655% higher than February, the height of COVID-19’s impact on the country.
Europe Inches Closer
Asia-Pacific’s thaw bodes well for the rest of the world; that’s if strides are made against the pandemic, either a further rollback of cases or continued promise of therapeutics and a vaccine.
In Europe, it’s still touch and go, with countries, such as Spain, seeing a recent resurgence in cases.
Though profit remains stuck in negative territory, a break-even level is in sight at last. In July, TRevPAR saw its largest jump in three months, up to $36.91, 113% higher than June. The growth in total revenue came on the back of rising RevPAR, which dipped into double digits for the first time since March, bolstered by an average rate above $100 and a climb in occupancy.
Still, and despite continued expense degeneration, it was not enough to produce positive GOPPAR, which was recorded at -€3.26, down 104% against the same time last year, but 77% higher than June.
Total labor costs on a per-available-room basis were up more than €2 from June to July, a sign that more hotels are reopening and getting back to business after preceding closures.
At -8.8%, profit margin at Europe’s hotels was still negative in July, but it’s good news: In June, profit margin stood at a disconcerting -83.1%.
U.S. Seeks Smoother Waters
July was an especially difficult month in the U.S. vis-à-vis new COVID-19 cases. On July 16 alone, new cases topped 70,000, according to the CDC – the first time that threshold had been broken. In total, there were five days in the month where new cases exceeded 70,000. New cases have since ebbed: The 7-day moving average as of Aug. 23 was 42,909, according to the CDC.
Amid that backdrop, July’s hotel performance numbers remained limp, but still better than the previous month. TRevPAR was up to $43.68, a 29% increase on June, though down 82.4% YOY.
Both occupancy and rate continue to inch up higher month-to-month, leading to RevPAR of close to $30, a $7 gain over June and 230% higher than the lifeless $8.94 RevPAR in April.
GOPPAR, however, remained below zero at -$5.59, a 106.7% decline from the year prior, the result of a revenue shortage combined with a continued cost base that is smaller, but still existent. Total labor costs were down 72% YOY, and after an actual jump in June over May, settled back to around $25 per available room, which is where they’ve been since the impact of the pandemic began showing up in performance data in April.
On a good note, profit margin improved 46 percentage points over June to -12.8%, the best it’s been since March.
Middle East Makes Moves
The Middle East also saw improvements on a month-over-month basis. RevPAR climbed $8 higher than in June, bolstered by an almost $20 hike in rate to $123.72, which was only 9% lower than at the same time last year. Room-revenue generation underpinned month-over-month growth in TRevPAR, which also gained an almost $20 bump to $55.90, which is a 47% increase over June. Beyond rooms, F&B revenue saw a nice bump, up 67% on June.
Expense drops included a 31% YOY decrease in utilities and a 47% YOY decrease in total labor costs. Still, better revenue production coupled with expense cuts were not enough to produce positive GOPPAR, which was recorded at -$4.52 in July, a 113% YOY decrease, but an improvement of 74% on June.
Like other regions, profit margin in the Middle East was still negative, but climbed 38 percentage points to -8.2%.
Theodore is the Co-Founder and Managing Editor of TravelDailyNews Media Network; his responsibilities include business development and planning for TravelDailyNews long-term opportunities.