HOTEL LIFE CYCLE

Hotel Lifecycle

Years Occupancy & Income

0 – 2 Introduction to market

2 – 4 Occupancy rises slowly

4 – 5 Gradual increases in income

5 – 7 Stabilized income levels

7 – 10 Decline due to deterioration & obsolescence

Lifecycles can be lengthened based on maintenance & upgrades

Hotel Lifecycle

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500

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35001 3 5 7 9 11 13 15 17 19 21 23 25

Years

$ 00

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InflatedConstant

Value per Hotel Room

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LuxuryUpscaleMidscaleEconomyBudget

Hotel ExpensesRooms Division

Food & Beverage

Category Percent of ExpensesSalaries & wages 50 – 70Employee benefits 5 – 15Laundry 7 – 12Supplies 1 - 4

Category Percent of ExpensesFood costs 35 – 45Beverage sales 20 – 30Salaries & wages 25 – 35Employee benefits 2 - 9

Income Calculations

 

Departmental Expenses = 35%Operating Expenses = 20%Fixed Charges Expense = 5%

Income & Expenses Forecast

2009 2010 2011Number of Rooms 305 305 305Occupancy 70% 75% 80%Average Daily Rate 93.22$ 95.00$ 99.00$ Days Open 365 365 365Rooms Occupied 77,928 83,494 89,060

Total Rooms Revenues 7,264,402$ 7,931,906$ 8,816,940$ Departmenal Expenses 2,542,541$ 2,776,167$ 3,085,929$

Departmental Income 4,721,861$ 5,155,739$ 5,731,011$ Operating Expenses 1,452,880$ 1,586,381$ 1,763,388$

Income Before Fixed Charges 3,268,981$ 3,569,358$ 3,967,623$

Total Fixed Charges 363,220$ 396,595$ 440,847$

Net Income 2,905,761$ 3,172,763$ 3,526,776$

What Makes a Hotel Profitable?

• Profits = Income before capital reserve, rent, debt service, income taxes, depreciation and amortization.

Hotels that have higher profit margins:• Are smaller

• Rely less on Food & Beverage

• Able to control departmental expenses

Controlling Labor Costs• Payroll & Benefits:

= 64% of rooms department expenses= 43% of total operating expenses= 33% of total revenue

• Growth of hotel revenues is virtually identical to the growth of labor costs.– (Correlation coefficient of 0.9924)

Ways to control labor1. Adjust staffing2. Adjust salaries & wages

Franchise FeesFranchise fees are the 2nd largest operating expense after payroll

Highest Brand % of Room Rev

First-classHilton 10.1%

Mid-rangeComfort Inn 10.5%

EconomyDays Inn 10.3%Travelodge 10.1%

Lowest Brand % of Room Rev

First-classOmni 6.8%

Mid-rangeBest Western 2.1%

EconomyScottish Inns 5.7%Red Carpet Inns 6.3%