This is the second year hotels have reported double-digit profit, according to the report, Trends in the Hotel Industry. However, the report also showed that expenses have been rising at a level more than twice the rate of inflation. "Overall the strong economy has been a blessing for US hotel managers. However, it also presents some operational challenges," says president R. Mark Woodworth of PKF Hospitality Research in a prepared statement. "Hotels have been the beneficiaries of strong increases in demand that have resulted in tremendous gains in revenue. However, the inflated costs of such expenses as property taxes, utilities and labor have inhibited the flow-through of top-line dollars into bottom-line profits."
In 2005, the cost of operating a hotel rose 6.5%, with the cost of utilities leading all expenses in percentage of growth. The cost of utilities has risen 13.6% from 2004 to 2005. "The good news is that the increase, while shocking, is still less than the 27% growth rates observed during the energy crisis of the 1970s. The bad news is that our clients are reporting 20% increases in their first quarter 2006 utility bills," Woodworth notes. Labor and related expenses, which account for 44.6% of all operating expenses, increased by 5.1% last year, the report states.
As it looks to the future, PKF Hospitality Research is predicting that the hotel industry is starting to approach the peak of the current cycle. PKF is forecasting the total revenue will increase 7.6% in 2006 and 4.1% in 2007. This is projected to result in profit gains of 14.9% in 2006 and 7% in 2007.
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