How ill will the hotel industry become?
That 2009 wasn’t the best of years for the hotel industry is an understatement. According to at least one published report, it was the worst since 1932 in terms of revenue decline. And the expenses are still there, if not mounting. The largest price tag to hotels – labor costs. They take up nearly 33 percent of revenue and nearly 46 percent of operating costs.
The good news is labor costs are arguably some of the easiest expenses to control. That is, until the emergence of national health care reform. While the legislation is aimed at reducing the rate of inflation within the health care system, the costs of bringing more employees under the health care umbrella could be significant.
No one needed to tell those of us in the hotel insurance industry that insurance rates were increasing steadily. So it comes as no surprise that an August 2009 study by PKF Hospitality Research reports that insurance costs are the fastest growing expense for hoteliers. Over the last ten years, rates have gone up 4.4% annually. From an average $265 per room in 1999 to $558 in 2004 (the latest PKF Hospitality study examined today’s recessionary period with that of the 2001-2003 period). It’s not likely to get better, either. PKF also predicted an estimated 5.3% drop in net operating income and a 1.1% decline in RevPAR for 2010.