Structural Differences
Costs and Profit as a % of Total Revenue – Rolling 12 Months to August 2024 – South America and Americas
South America
Americas
8 %
12 %
digit territory in Q2 with increases of 16.9 % in the top line and 19.0 % in the bottom line . And even though results for Q3 are not finalized yet , the combined July and August numbers continue to show the region ’ s strength , as TRevPAR placed 16.2 % above 2023 and GOPPAR did so by 19.5 %.
COUNTRY MOVES The key markets driving this phenomenon are Peru and Chile . In the case of Peru , the years 2022 and 2023 were marred by political and social unrest , violent demonstrations and airport closures , a mix that wreaked havoc on the country ’ s tourism industry . With a more stabilized environment in 2024 , Peruvian hoteliers are finding their way toward recovery . In the current financial year ( January through August ), TRevPAR and GOPPAR in the country have grown 42.2 % and 80.5 %,
25 %
35 %
26 %
0 % 100 % CoS % Labor % Other Expenses % GOP %
Figure 2 : Cost and profit margins in South America and the Americas average .
21 %
respectively , year-on-year . Chile has also seen its share of political and economic instability in the years after COVID , and just like Peru , it ’ s beating its softer 2023 comps by a wide margin , with TRevPAR up 21.2 % and GOPPAR up 38.6 % year to date . Though at a more mature stage of its post-pandemic recovery than Peru and Chile , Brazil is another major force behind the South American upswing , also achieving growth in both TRevPAR ( up 10.8 %) and GOPPAR ( up 9.0 %).
PROFIT MATTERS South America also stands out as a flow-through leader in 2024 . Flow-through essentially measures how much of each incremental dollar of revenue turns into additional profits . Flow-through provides a clear signal of the trajectory profit margins will follow in the future because it highlights the
38 %
36 %
profitability of new revenue streams . In the first eight months of the year , South America achieved a 38 % flowthrough , meaning that it added 38 cents of profit for every dollar of revenue added from the previous year . At 32 %, the Caribbean was a close second . However , the picture was completely different for Central America , which struggled with a -49 % result . This negative percentage means that for each dollar of year-on-year top-line increase , Central America saw a 49-cent profit decline . South America retains its leadership status even in comparison to Canada and the United States , as flow-through was 27 % and 6 %, respectively , in the northern countries .
To understand the stabilized cost and profit structure in South America as compared to the Americas average , we use the rolling 12 months through August 2024 . The results are reported in Figure 2 below .
South American hotels operate at a 2-percentage-point higher profit margin than the average for the Americas . This is achieved strictly because of a much lighter labor cost percentage , as cost of sales and other expenses account for greater portions of total revenue .
Most of the 4-point cost of sales negative difference is explained by food costs , which are 3 percentage points higher in South America than its wider region . The remaining point comes from higher commissions and reservation fees in the Rooms department . Undistributed expenses are behind the bulk of the other expenses differential , particularly due to higher energy costs that increase the weight of utilities . Conversely , it ’ s in the operated departments that we see the greatest savings in South America , splitting the 10-point favorable difference almost equally between the non-management salaries and wages in the Rooms and F & B departments .
Despite the rocky years after the COVID pandemic , South America is coming back in full force in 2024 , so it ’ s no surprise that brands and investors are showing great appetite for the region . Looking at the last part of 2024 and into 2025 , we expect results to remain positive though on a more reduced scale , as we move past the softer comp years and into a more normalized pattern .
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