Luxury ’ s Curse and Fortune
The trajectory of luxury hotel performance , though halting , was not an unexpected twist . Luxury hotels are the first asset class to suffer in crisis situations with 9 / 11 and the Global Financial Crises of 2008 illustrative of events that presaged COVID-19 , just not on a similar level of distress .
Global disasters like COVID are a system shock that sap luxury demand , both leisure and corporate , as travelers pull back discretionary spending and companies , especially Fortune 500 companies , banks , law firms and other well-heeled organizations , curtail overall employee travel and spend .
Luxury hotels are typically complex assets that beyond the sale of rooms , have a high concentration on food & beverage and other ancillary revenue streams and employ a heavy workforce that services it . Despite GOPPAR remaining negative for the bulk of 2021 and the latter portion of 2020 , labor in Europe ’ s luxury hotels continued to be a cost to owners . In fact , total payroll on a PAR basis increased month to month from May 2020 forward after dropping to its lowest rate of € 32.3o in April 2020 . It reached more than € 63 in September 2020 , before regressing to a low of € 38 in January 2021 . Total payroll on a PAR basis was up to € 101 in March 2022 .
On the revenue side , food and beverage revenue hit its low in April 2020 at € 1.13 , but progressed from that point and is at € 65 YTD 2022 . TRevPAR , accordingly , hit its low in April 2020 at € 15.37 , but is now at
€ 205 YTD 2022 — a strong comeback from its nadir .
Though luxury hotels are typically the first segment to feel the sting of calamity , they , on average , have a sharper recovery compared to other segments . Though luxury hotels saw precipitous declines out of the COVID gate , other asset classes in Europe did not absorb the same steep drops . To be sure , they suffered , but not to the same extent . Full-service , limited- and selectservice and extended-stay hotels all dropped the performance ball as of March 2020 , but only full-service hotels suffered negative profit as the others either broke even or sustained small profit . At its lowest depth , full-service hotels hit - € 13.72 GOPPAR in April 2020 , € 30 more than luxury hotels at their lowest .
Fortunes began to turn for European luxury around the summer of 2021 , when GOPPAR got off its negative run , hitting € 39 in June , a nearly 1,700 % increase over the previous month of May . GOPPAR hit a high of € 119 in August 2021 , still € 38 off its August 2019 number , but demonstration of a summer return to travel and vacation — albeit brief . By January 2022 , luxury hotels were back to negative GOPPAR of - € 12.19 , which could be more a function of seasonal trends , though a resurfacing of COVID cases across Europe are an always-present specter .
The fight back to higher profits is not only an issue of revenue , but expense . Certainly an outcome of inflationary times and war in Ukraine , utility costs on a PAR basis in the luxury segment are escalating at an alarming rate , up 105 % YTD versus the same period a year ago . At € 12.16 as of March 2022 , it ’ s 32 % higher than March 2019 . Gas , electricity and contract services ( the cost for services from firms that are engaged in energy audits , water reclamation , infrared detection for energy consumption , etc .) are the prime culprits for the rise in hotel utility bills , all up more than triple digits YTD versus the same period a year ago .
Luxury hotels across the European continent are battling back to profit prominence , but it remains an uphill climb . Key European cities have seen a recent return in international demand , which has aided the profit recovery . Still , conference and events continue to lag and operational cost inflation could be impacted further by the current labor market , energy costs and supply-chain interruption . Operational efficiencies , particularly in the undistributed departments , will go some way to offsetting these challenges .
About the author Michael is Chief Operating Officer at Hotstats . Hotstats provide monthly P & L benchmarking for the hotel industry , collecting monthly detailed financial data from hotels around the world from over 100 brands and independent hotels , and provides over 550 different KPIs covering all operating revenues , payroll , expenses , cost of sales and ultimately departmental and total hotel profitability . Prior to joining Hotstats , Michael held multiple Operational & Financial roles at Hotel and Corporate level , over 16 years and is a regular guest lecturer at universities around the world .
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