US hotel profits reach highest levels in more than 2 years
Hotel rates are sky-high and travel demand is soaring heading into summer. That raucous party you can hear faintly in the distance just might be a celebration by the financial teams at Marriott, Hilton, Hyatt, or just about any other major hotel conglomerate.
But while it's time to party like it's 2019 again when it comes to U.S. hotel profitability, that doesn't mean everything's back to normal in this travel sector.
Gross operating profits per room for U.S. hotels in March hit their highest levels since November of 2019, hotel data firm STR, Inc. reported this month. Higher rates and reviving demand generators like group and business travel drove profit margins.
That shouldn't be a total shock: Marriott reported this month that luxury rates at the company were 27% higher than 2019 levels for the first three months of this year. Even the usually affordable brand mix at Choice Hotels saw a 9% rate increase over pre-pandemic levels in the first quarter.
There are other factors at play that are providing a less than a solid foundation to the industry's recovery, though. Higher profit margins have been partially driven by hotels temporarily suspending some services during the pandemic. And whether those return depends in part on a certain travel segment.
"Right now, [the profitability recovery] is still about a lot of leisure travel out there. That's really driving things, but we're starting to see the recovery of group travel," said Joseph Rael, senior director of financial performance at STR. "That's important for those big box hotels of the publicly traded big brands that report quarterly. It's really important for them because that group demand really drives the food and beverage departments."
Major hotel companies worked during the pandemic to lower financial break-even points at individual hotels by cutting costs. This meant lower staffing levels, limited hours (or outright closures) at restaurants and lounges, and a reduction in services like daily housekeeping.
At the same time, holding onto higher hotel rates during even low-demand times enabled individual properties to recover quicker than in prior economic down cycles.
Those service and amenity cutbacks have enabled individual hotel owners to eke out some profitability, but guest tolerance for such practices only goes so far.
Travel demand is widely expected to exceed pre-pandemic levels this summer. The return of non-leisure demand generators like group and business travel should boost profits even further — though, despite that, the return of daily housekeeping as a widespread practice is still up in the air.
Revived group and convention travel ought to breathe new life into on-site dining and hotel bars — a major win for hotel companies looking to make money off more than just a guest room.
"[Food and beverage] has been slow to recover. [Hotel owners] reduced those operations, and then the group demand just hasn't been there," Rael explained. "As we kind of get that group demand back, you have all these guests that are spending a lot of their money on-site. It really drives that F&B revenue."
Beyond that, it's still a tale of two recoveries for the hotel industry. Hotels in beach destinations are the clear winners, as profits in Miami were at 141% of 2019 levels, according to STR. San Francisco, however, is only at about 56% of 2019 revenue levels, Rael shared.
A full financial recovery very much rests on the group and business travel sectors seeing a rebound to their pre-pandemic levels. That would have guests utilizing all the services of a full-service hotel, from the bars and restaurants to meeting spaces and catering.
"In the end, the group and business travel is really what drives a lot of the top brand performance," Rael said.
Some of that can be supplemented with leisure travel, especially in destinations like Miami. However, there's still an industry beyond Florida, and those hotels can't bank as easily on vacationers picking up the slack in profits.
TPG featured card
at American Express's secure site
Terms & restrictions apply. See rates & fees.
| 4X | Earn 4X Membership Rewards® points per dollar spent on purchases at restaurants worldwide, on up to $50,000 in purchases per calendar year, then 1X points for the rest of the year. |
| 4X | Earn 4X Membership Rewards® points per dollar spent at US supermarkets, on up to $25,000 in purchases per calendar year, then 1X points for the rest of the year. |
| 5X | New! Earn 5X Membership Rewards® points on prepaid hotel stays booked through AmexTravel.com or the Amex Travel App. |
| 3X | Earn 3X Membership Rewards® points on flights booked through AmexTravel.com, the Amex Travel App, or purchased directly from airlines. |
| 2X | Earn 2X Membership Rewards® points on prepaid car rentals booked through AmexTravel.com or the Amex Travel App and cruises booked and paid through AmexTravel.com. |
| 1X | Earn 1X Membership Rewards® point per dollar spent on all other eligible purchases. |
Pros
- Valuable dining and food-related credits
- Flexible rewards with airline and hotel transfer partners
- Multiple travel and purchase protections
- No foreign transaction fees
- Access to Amex Offers for additional savings (enrollment required)
Cons
- Not as useful for those living outside the U.S.
- Some may have trouble using Uber and other dining credits
- You may be eligible for as high as 100,000 Membership Rewards® Points after you spend $8,000 in eligible purchases on your new Card in your first 6 months of Card Membership. Welcome offers vary and you may not be eligible for an offer. Apply to know if you’re approved and find out your exact welcome offer amount – all with no credit score impact. If you’re approved and choose to accept the Card, your score may be impacted.
- Earn 4X Membership Rewards® points per dollar spent on purchases at restaurants worldwide, on up to $50,000 in purchases per calendar year, then 1X points for the rest of the year.
- Earn 4X Membership Rewards® points per dollar spent at US supermarkets, on up to $25,000 in purchases per calendar year, then 1X points for the rest of the year.
- New! Earn 5X Membership Rewards® points on prepaid hotel stays booked through AmexTravel.com or the Amex Travel App.
- Earn 3X Membership Rewards® points on flights booked through AmexTravel.com, the Amex Travel App, or purchased directly from airlines.
- Earn 2X Membership Rewards® points on prepaid car rentals booked through AmexTravel.com or the Amex Travel App and cruises booked and paid through AmexTravel.com.
- Earn 1X Membership Rewards® point per dollar spent on all other eligible purchases.
- Pay It® lets you tap in the American Express® App to quickly pay for small purchase amounts throughout the month and still earn rewards the way you usually do. Plan It® gives you the option to split up big purchases into equal monthly payments with a fixed fee. You’ll know upfront exactly how much you’ll pay.
- Updated! $120 Dining Credit: Earn up to a total of $10 in statement credits monthly when you pay with the Gold Card at Grubhub (including Seamless), Buffalo Wild Wings, Five Guys, The Cheesecake Factory, and Wonder. This can be an annual savings of up to $120. Enrollment required.
- $100 Resy Credit: Get up to $100 in statement credits each calendar year at over 10,000 qualifying U.S. Resy restaurants after you pay for eligible purchases with the American Express® Gold Card. That’s up to $50 in statement credits semi-annually. Enrollment required.
- $84 Dunkin' Credit: Earn up to $7 in monthly statement credits after you pay with the American Express® Gold Card at U.S. Dunkin’ locations. Enrollment required.
- $120 Uber Cash on Gold: Enjoy up to $120 in Uber Cash annually with your Gold Card. Just add your Card to your Uber account and you'll get $10 in Uber Cash each month to use on orders and rides in the U.S. when you select an Amex Card for your transaction.
- New! As an American Express® Gold Card Member, you can enjoy complimentary Hertz Five Star® Status. Enjoy benefits like skipping the counter at select locations, adding an additional driver at no additional cost*, and vehicle upgrades**. Benefit enrollment and Hertz Gold+ registration are required. *Additional drivers must meet standard rental qualifications and must be a spouse or domestic partner to qualify as complimentary. Other additional drivers subject to fees. **Benefits are subject to availability and vary by location. Additional Hertz program Terms and Conditions including age restrictions apply.
- Take advantage of a $100 credit towards eligible charges* at over 1,300 upscale hotels worldwide when you book The Hotel Collection through AmexTravel.com or the Amex Travel App **. *Eligible charges vary by property. **The Hotel Collection requires a two-night minimum stay.
- Book your travel through the Amex Travel App with added peace of mind – backed by American Express® service and support. Only for American Express® Card Members.
- Whenever you need us, we're here. Our Member Services team will ensure you are taken care of. From lost Card replacement to statement questions, we are available to help 24/7.
- No Foreign Transaction Fees.
- Annual Fee is $325.
- Terms Apply.