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Survey finds hotel cost cutting may be working.

Despite continued declines in occupancy rates and the addition of new hotels in many markets, hotel operators may have turned the corner on reducing losses and may be heading down a long road toward profitability, according to the 1991 midyear update of The HOST Report, published by the Arthur Andersen Real Estate Services Group (RESG). The HOST Report contains revenue and operating statistics from more than 2,000 full-service, limited-service and all-suite hotels, compiled by the firm Smith Travel Research.

According to David Berins, worldwide director of Arthur Andersen's hospitality industry consulting practice, "Profitability has become the rallying cry among hoteliers, with active cost-control measures being implemented throughout measures being implemented are cutting low-value and under-utilized services, streamlining management, and increasing productivity improvement techniques, without affecting guest services in any major way." The recession and the Gulf was contributed to a drop in occupancy rates to a weighted average of 60 percent in the first half of 1991, down from the 1990 full year occupancy average of 63.3 percent and the worst in the first two quarters in many years. Hoteliers, however, managed to pare costs and, therefore, increase average income before fixed charges from 22.3 percent of revenue for the year 1990 to 23.5 percent of revenue in the first half of 1991. (Note: The HOST Report mid-year update does not present fixed charges -- property tax, depreciation, rent, insurance, etc., in most of its tables as many of these costs are not calculated on a periodic basis throughout the year.)

"A great deal of this increase in income before fixed charges can be attributed to cost savings reductions and productivity improvements," Berins said. "In the most simplistic sense, a guest may no longer find a mint on the pillow. But beyond this, many hotel operators have conducted detailed, line-by-line examinations of those services and amenities which, in previous years, were automatically provided to every guest, such as the morning newspaper, sewing kits, or nightly service to turn down the bed. Today, operators still provide these amenities, but many use an 'on request' approach. Productivity has been improved in a number of areas, such as the use of plastic seals on in-room mini-bars, so the domestic staff can easily and quickly determine if the contents need to be counted for billing purposes. In addition, room service may not be provided in the early morning hours, or menu items which do not sell my be quickly pulled."

"Lenders, owners and operators all continue to struggle to work out the deals made during the go-go 1980's," Berins continued. "There are no indications of a return to profitability in the near term it is estimated that each type of hotel continued to lose money in the first half of 1991. However, there are signs that the industry may have bottomed-out in terms of operating losses, and there are some reasons for long-term optimism."

Full-service hotels, the predominant type in the hospitality industry, showed an income before fixed charges of 21A percent of revenues, or $26.88 per occupied room night, higher than the 19.6 percent percentage in 1990 ($24.05 per occupied room night). The highest profit ratio was recorded in New Orleans, where full-service hotels benefitted from strong occupancies and average rates, combined with low labor costs. Orlando and Miami full-service hotels also performed above average. Worst performance by full-service hotels occurred in Detroit, as a 47 percent occupancy rate was far below the generally acknowledged break-even level.
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Title Annotation:according to survey published by Arthur Andersen Real Estate Services Group
Publication:Real Estate Weekly
Date:Jun 10, 1992
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