An analysis of U.S. hotels' profit-and-loss statements over 2020 gives a clearer picture of how COVID-19 has affected hotel finances.

In the online panel “P&L Overview: Analyzing Profits (and Losses) in the Pandemic” ahead of the Hotel Data Conference: Global Edition on March 25, STR Senior Director of Financial Performance, Consulting & Analytics Joseph Rael broke down how the pandemic affected U.S. hotel revenue and expenses in 2020. STR is CoStar’s hospitality analytics firm.

Hotel gross operating profit per available room for 2020 was 15% of 2019 levels in the U.S., and hotel markets across the globe reported similar levels, Rael said.

Monthly data shows, since the start of the pandemic, four P&L key performance indexes in the U.S. declined in 2020 compared to 2019: GOPPAR; total revenue per available room; earnings before interest, taxes, depreciation and amortization per available room; and labor per available room.

Gross operating profit was 38.6% of revenue in 2019, but that decreased by 22 percentage points in 2020. Similarly, EBITDA’s percentage of revenue was down 31.2 percentage points in 2020.

“Labor costs were actually increasing as a percentage of total revenue,” he said. “In fact, nearly half of all revenue right now is going toward labor costs.”

The pandemic had a larger effect on profit margins at full-service hotels than select-service, Rael said. Limited-service hotels typically have higher profit margins, but full-service hotels experienced a drop of 23 percentage points compared to a decline of 17 percentage points at select-service hotels.

From a class perspective, upper-upscale hotels performed the worst in total revenue per available room and gross operating profit per available room. These are larger hotels with a lot of rooms and meeting space, and they are typically located in downtown areas near convention centers, making them well-suited for groups and meetings, Rael said.

Because group demand is down so much compared to transient leisure demand, these types of hotels are struggling now, he said.

Classifying hotels by location type shows that airport and urban hotels posted the largest declines in both total revenue per available room and gross operating profit per available room. Airport hotels reported
In 2020, total revenue per available room decreased by 65% at airport hotels and 71.3% at urban hotels; and gross operating profit per available room was down 85.3% at airport hotels and down 99.1% at urban hotels.

“Not only are you seeing that impacts from low group demand, but also corporate transient demand. Much of that demand takes place in that urban [central business district] downtown of those major markets,” he said.

There was a dramatic decline in 2020 for luxury hotels from an average of $150 of gross operating profit per available room to $25, Rael said. Similarly, upper-upscale hotels dropped from an average of just under $100 in GOPPAR to about $10.

That was not the case, however, for independent hotels, which had gross operating profit per available room drop from an average of less than $125 to about $50, with gross operating profit margin falling from a little more than 40% to just above 30%.

“These independents tend to be full-service, boutique hotels that sit in between luxury and upper-upscale,” he said. “You notice here, not only did they see a much less of a decline in terms of GOPPAR, that margin really held up really well.”

Total rooms revenue declined 63.6% in 2020, Rael said. Food and beverage departments underperformed all of the other revenue departments.

Miscellaneous income held up the best because this department includes a lot of fee-based revenue, such as resort fees and cancellation fees, he said. Some hotels that have rented out the entire property to hospitals have included the revenue from this in miscellaneous.

Declines in departmental expenses are similar to the revenue declines, Rael said. However, the problem lies in the undistributed expenses, such as general and administrative expenses, marketing, maintenance and utilities. These expenses didn’t decline as much as different revenue streams did.

“A lot of that has to do with the fixed component, the fixed costs in these departments,” he said.

Because of that, hotels reported going from a 63.6% total revenue decline to an 84.5% gross operating profit decline.

Labor costs are down nearly 50%, and that’s a stronger decline than expected when compared to previous downturns in which labor costs typically fell at about half the rate of total revenue, he said.

“During the pandemic, this is really all about demand, so demand is causing the RevPAR declines,” he said. “Because of that, those labor costs are actually pretty in line with those that decrease demand.”

Food and beverage room service outperformed the rooms department in revenue, Rael said. Catering and banquet services did not perform as well, each coming in at about 20% of 2019 levels.

“These are revenues that are really generated through that group business, and so those are way down as well,” he said.

To watch this presentation, register for the Hotel Data Conference: Global Edition here.