Report confirms sad state of hotel profits in greater Los Angeles area.

Full-service hotels in the greater Los Angeles area last year had the second lowest operating profit margin of any group of hotels in major U.S. metropolitan areas, according to a recent industry report by the local office of Arthur Andersen & Co.

The report by the international accounting and consulting firm found full-service hotels in the greater Los Angeles area had an average operating profit margin before fixed costs of 11.8 percent, compared to a national average of 19.4 percent.

An operating profit margin is defined as the percent of sales that are profit before payments for owner expenses, excluding property taxes and insurance but including ongoing finance charges. Profit margin after payment of owner expenses is not part of the study.

Overall, the study confirms that Los Angeles hotel operators today are in one of the toughest markets in the country.

The report, based on a survey of hotels, found the average operating profit margin in greater Los Angeles was equal to that in the Houston area. The Los Angeles figure was higher only to the average margin of hotels in the greater New York City area, which recorded a 9.3 percent average. Of the 21 major metropolitan areas measured in the study, hotels in New Orleans had the highest operating profit margin, with a 28.5 percent average.

The second highest average was recorded by hotels in the Miami-Hialeah, Fla., area, which recorded a 26.1 operating margin last year.

The study found operating profit margin at area hotels declined in 1992, from 14.1 percent in 1991, while nationally, the rate increased from a 17.3 average in 1991 to 19.2 percent.

The study found full-service hotels in the greater Los Angeles area, which is basically Los Angeles County with the exception of the Lancaster/Palmdale area, had higher labor costs than 19 of the 21 metropolitan markets. An average of 42 percent of a full-service hotel's sales revenue went to cover labor costs in the Los Angeles area in 1992, compared to a national average of 35.9 percent, the report said.

Only New York and San Francisco hotels spent more on labor costs, the report found.

In 1991, full-service hotels in greater Los Angeles spent an average of 41.4 percent of their sales revenue on payroll expenses.

Hank Jones, an Arthur Andersen hotel consultant in the L.A. office, said the study covers 1992 but was only released in the past few weeks because it takes several months to compile the 108-page report.

In terms of income per available room, the study again found that Los Angeles hotel operators are in a tough, and expensive market because of high labor and other costs.

According to the report, per-room income after expenses but before owners' fixed charges averaged $3,981 at full-service hotels in the Los Angeles area in 1992. Nationally, the per-room income averaged $5,264 in 1992. In 1991, the per-room income before fixed charges in Los Angeles was $4,577 and nationally the average was $4,460.

Again, payroll expenses on a per-room basis were much higher in L.A. than in the rest of the country. The report found local hotel operators paid an average of $14,279 per room on labor costs in 1992 compared to $13,413 in 1991.

Nationally, the per-room payroll cost averaged $9,727 last year and $9,470 in 1991.

The higher costs more than offset gains local operators made in per-room revenue, which is the amount of money each room generated before any costs. Revenue includes room charges, telephone use and food and beverage charges. Los Angeles hotel operators reported per-room revenue of $33,975 in 1992 compared to a national average of $27,073.

In 1991, per-room revenue averaged $32,389 in Los Angeles County and nationally, the average was $25,711.