Hotels: Energy Costs Surge; Shock Absorbed By Revenue

Throughout 2005 we all heard the news of oil prices lingering above $50 a barrel and gasoline exceeding $3.00 a gallon. For long-term lodging industry participants, vivid memories of the gas lines and high inflation of the 1970s resurfaced. Understandingly, hotel owners and operators feared that a fall off in travel would cause occupancy to decline, and rising utility costs would kill profits.

Looking back at 2005, it appears that the U.S. lodging industry was able to withstand the spike in energy costs. By year-end 2005, PKF Hospitality Research (PKF-HR) estimates that U.S. hotels enjoyed significant increases in demand that lead to increasing occupancy and record growth in profits.

Based on input from several hotel companies, PKF-HR estimates that the typical hotel in the U.S. spent 12.0 percent more on utility costs in 2005 versus 2004. This is the largest single year increase in utility costs since 1981 when energy expenses rose 17.1 percent. During the year, full-service hotels endured a slightly greater increase (13.0 percent) compared to limited-service properties (11.0 percent).

Fortunately for U.S. hotels, tremendous gains in revenue helped to absorb the rise in utility costs. During 2005, U.S. hotels were able to raise their total revenues by an estimated 10.5 percent. Like the growth in energy costs, the 10.5 percent gain in total revenues is the greatest seen in over 20 years.

Hospitalitynet