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Hang Up The Phone; Hold The Starch

The first 10 years of the 21st century could be characterized as the lost decade for the U.S. lodging industry. From 2000 to 2009, the average hotel that participated in the annual Colliers PKF Hospitality Research (PKF-HR) Trends® in the Hotel Industry survey experienced a negative 1 percent compound annual change in total revenue.

The cyclical nature of the lodging industry has been well documented. Hotel managers have become adept at adjusting their marketing tactics and operating procedures to changing economic environments. Rightfully so, the majority of management’s attention is devoted to maximizing the revenue received from renting guestrooms. For the average hotel in the Trends® survey, the rooms department accounts for 66 percent of total hotel revenue and 82 percent of total departmental profits.

At 5 percent of total revenue, the sales generated by the other operated departments within a hotel are relatively minimal. Other operated departments can range from a few hundred dollars of telecommunications revenue at a limited-service hotel, to a multimillion-dollar golf course at a resort property. Being a minor source of revenue for most hotels in the U.S., other operated departments do not receive much consideration from operators. And, on average, the revenue from these sources has declined 3.2 percent on a compound annual basis from 2000 to 2009.

As PKF-HR has noted in previous articles, some other operated departments (golf, spa, retail) are profitable sources of income and serve to enhance the competitive position of the hotel in the marketplace. However, most of the minor other operated departments have become inconsequential sources of revenue.

Using our Trends® database, we have examined the historical movements in minor operated department revenues from 2000 to 2009. The minor other operated departments analyzed include: telecommunications, guest laundry, movie rental, and parking.

It should be noted that our examination was limited to hotels that manage the preceding minor operated departments. Hotels that outsource these functions in exchange for a commission payment were excluded from our analysis.

Societal Changes
The impact of cell phones has certainly had an impact on telecommunications revenue.  The revenue hotels receive from the use of guestroom telephones and faxes has declined each and every year from 2000 to 2009. During this period, telecommunications revenue has fallen 19.7 percent on a compound annual basis. Even the inclusion of guest Internet charges to this revenue source has failed to curb the decline.

Portable technology has also contributed to the falloff in the revenues hotels receive from pay-per-view movies and video games. With the ability to download movies and games directly to their laptops and smart phones, hotel guests no longer have the need to purchase these forms of entertainment. From 2000 to 2009, total movie rental revenue has declined 5.4 percent on a compound annual basis. Taking the decline in occupancy into account, this revenue source fell 4.3 percent on a per-occupied-room basis during the same period.

Guest laundry is certainly a minor source of revenue averaging just 0.126 percent of total revenue in the 2009 Trends® survey. As expected, guest laundry revenue is highest as a percent of total revenue at extended-stay hotels (0.134 percent), followed by full-service (0.127 percent), and limited-service (0.096 percent) properties.  
With casual business attire entrenched even during road trips and conventions, it appears that fewer people are stuffing their shirts and blouses into plastic bags and handing them to the bell staff as they head out the door in the morning. From 2000 to 2009, guest laundry revenue declined 5.5 percent on a compound annual basis.  Despite the declines in revenue, guest laundry service did manage to achieve a 6.6 percent departmental profit in 2009.

Driving Against Traffic
One minor source of revenue that has bucked the downward trend is parking. Parking revenues for our Trends® sample has increased each year from 2000 to 2009. During this period, the revenue received by hotels that provide valet parking and/or operate a parking garage increased 5.4 percent on a compound annual basis. This compares to the 1.4 percent compound annual decline in total revenue experienced by these hotels during the same period.

Not only has parking been a growing source of revenue for hotels, but also it is highly profitable. In 2009, parking departments achieved a 52.8 percent departmental profit margin, far in excess of the 27.9 percent average margin for all other operated departments. It should be noted that departmental profits come before any deduction for undistributed expenses or fixed charges.

Capturing Trends
Telephones, faxes, Internet charges, and pay-per-view movies were once considered emerging societal trends, and hotel operators quickly instituted guest services and amenities to generate revenue. Recently, hotel owners have redesigned their lobbies to capitalize on changing dining and social habits. Management focus will continue to center on the rental of guest rooms, but creative operators will find ways to take advantage of emerging trends to generate other forms of revenue.

Robert Mandelbaum is the director of research information services for Colliers PKF Hospitality Research. He is located in the firm’s Atlanta office. To purchase a copy of the 2010 Trends® in the Hotel Industry report, please visit www.pkfc.com/store

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