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US hotel profits reach highest levels in more than 2 years

May 13, 2022
4 min read
US hotel profits reach highest levels in more than 2 years
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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.

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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.

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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.

Featured image by If you stay at the Carlyle, be sure to have a drink at Bemelman's Bar. Photo courtesy of Rosewood Hotels.
Editorial disclaimer: Opinions expressed here are the author’s alone, not those of any bank, credit card issuer, airline or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities.

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TPG Editor‘s Rating
Card Rating is based on the opinion of TPG‘s editors and is not influenced by the card issuer.
4 / 5
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10XEarn unlimited 10X miles on hotels and rental cars booked through Capital One Travel
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Why We Chose It

The Capital One Venture X card is one of the best all-round travel credit cards ever launched. Not only is it offering a tremendous welcome bonus, but cardholders can earn tons of miles on everyday spending and receive a 10,000-mile anniversary bonus to boot. Its annual fee is $395, but cardholders can count on up to $300 in statement credits toward travel booked through Capital One Travel each year and other valuable benefits like access to Priority Pass lounges and Capital One’s own growing family of airport lounges.

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  • Excellent welcome offer worth 75,000 miles after you spend $4,000 on purchases in the first three months.
  • Up to $300 in annual travel statement credits toward bookings make through Capital One Travel.
  • 10,000 bonus miles (worth $100 toward travel) each account anniversary.

Cons

  • The $395 annual fee might be expensive for some, but this card’s benefits provide much more value than that.
  • If you don’t travel frequently, this might not be the best card for you.
  • Earn 75,000 bonus miles when you spend $4,000 on purchases in the first 3 months from account opening, equal to $750 in travel
  • Receive up to $300 back annually as statement credits for bookings through Capital One Travel, where you'll get Capital One's best prices on thousands of options
  • Get 10,000 bonus miles (equal to $100 towards travel) every year, starting on your first anniversary
  • Earn unlimited 10X miles on hotels and rental cars booked through Capital One Travel and 5X miles on flights booked through Capital One Travel
  • Earn unlimited 2X miles on all other purchases
  • Unlimited complimentary access for you and two guests to 1,300+ lounges, including Capital One Lounges and the Partner Lounge Network
  • Receive up to a $100 credit for Global Entry or TSA PreCheck®
  • Use your Venture X miles to easily cover travel expenses, including flights, hotels, rental cars and more—you can even transfer your miles to your choice of 15+ travel loyalty programs
  • Named editors' choice for "Best New Credit Card of 2021" by The Points Guy
  • Earn 10 miles per dollar when you book on Turo, the world's largest car sharing marketplace, through May 16, 2023