Over
the last few years, hoteliers across the country have experienced
significant increases in profitability. PKF’s “Trends
in the Hotel Industry – Canadian Edition 2000” reported
a 5% increase in total revenues per available room in 1999 relative to 1998,
with net income before fixed charges increasing 11% nationally in 1999. Since
1993, when profitability for hotels was at its lowest point, total revenues
have increased by 44% and net income has almost tripled. However, with such
strong improvements in revenue and profitability, the ability to truly measure
operating efficiencies may have been lost.
Over the
1993 to 1999 timeframe, inflation averaged about 2.0% per annum, a compounded
rate of 12.6% over the six-year period. As shown in the accompanying
chart, over that period however, Undistributed Operating Expenses
increased by almost 20%, that is 50% over the rate of inflation.
With an almost 30% increase
since 1993, Administrative and General expenses have perhaps been the largest
contributor to above the average increases. Had average expenses increased
by inflation only since 1993, we would be looking at per available room expenditures
in the range of $3,000, instead of the actual $3,500 spent in 1999. Marketing
costs, while fluctuating from year-to-year, were in fact in line with inflation
in 1999 at about $2,100 per available room.
Repairs
and Maintenance expenses have increased by about 22% since 1993, with
1999 costs of about $2,050 per available room, 10% higher than if costs had
increased at inflation only.
Energy costs have been
the only positive factor in reducing increases in overall Undistributed
Expenses in the last few years, with 1999 costs only 6.0% higher
than 1993 levels. Although
technology and improved awareness of energy efficiency have assisted in
lowering these costs, the instability of world energy markets
will make this one of the more unpredictable expenses in the
near future.
There are many factors influencing the increases
in Undistributed Expenses over the last six years, many beyond
the control of operators. At the same time, however, it should
be recognized that continued efforts to control costs, without
negatively impacting the operation or the asset, can only
enhance profitability and value in the future.
Andrea
Sire, Consultant
Pannell
Kerr Forster
