After peaking in 2000 at $11,100 per available
room, hotel profitability has eroded and not recovered due
to recent events. While the industry ended 2001, at $9,800
per available room it was on track to reach $11,700 per room
prior to the fallout of 9/11. Despite the set back of 9/11
and the lack of recovery in 2002, industry profitability
in these years at $9,900 per room was still in line with
1999 levels. Our forecast going into 2003 was for modest
bottom line growth in the range of 3% or $10,100 per room.
At a forecasted $8,200 per room in 2003, bottom lines will
be down 17% relative to 2002, and over 25% relative to 2000.
It is natural for all of us to look to 2000 as the benchmark
of industry profitability, however, a longer-term view provides
a more positive framework. At a forecasted $9,400 per room
in 2004, bottom lines will still be down relative to 2000,
but will have recovered to 1998 levels, which in advance
of the 1999-2000 period, was the strongest year of profitability
ever experienced by the industry, and was a long way ahead
of the troubled times of the early 1990’s.
Beyond 2004
As we look to the next five years, it is
impossible to project with any certainty. However, barring
any unforeseen events, we offer the following.
Our inventory of hotel rooms indicates that
supply will increase by about 1.6% in 2004 and about 1.0%
per annum until 2008. The net results will be a 4% to 5%
increase in supply by 2008. Based on positive economic factors,
but not anticipating any huge uplift in travel, demand will
continue to grow in the range of 2.5% per annum over the
2005-2008 period. As demand outpaces supply, the net result
will be about a 1 point improvement in occupancy annually.
Rates will increase in the range of 2.5% per year, or 10%
over the 2005-2008 period. In absolute dollars, we will be
back to 2000 levels of profitability by 2008, with profit
levels growing by 5% per annum over the 2005-2008 period.
Brian Stanford, Director
PKF Consulting
