Hotel profitability during recessions
PKF Hospitality Research predicts the 2008-2009 recession could cause some of the most challenging years for U.S. hoteliers. After studying trends in the Hotel Industry database concerning revenue, expense, and profit data from 1937 through present, PKF found that all hotel performance indicators mirror declines in the economy. PKF based their findings on change in unit-level hotel financial performance for the years that correspond to the peak-to-trough contraction phase of the designated recessionary period.
According to the Bureau of Economic Research, the U.S. has experienced 11 economic recessions since 1937. During these times, the most likely impacts on lodging attributable to economic recession were declines in revenue and profit. Average Daily Rate (ADR) gains fell short of offsetting declines in occupancy, leading to diminished levels of total revenue. Expense control saved hotels during the recessions of the early 1990s and 2000s. Facing declines in occupancy and ADR, hotel managers cut costs by cutting their payrolls.
As of January 27, 2009, PKF is forecasting lodging demand to decline 4.2 percent from 2007 through 2009. By year-end 2009, occupancy is forecast to be 57.2 percent, the lowest since Smith Travel Research began tracking national lodging performance in 1988.
