HOTEL LIFE CYCLE

Hotel Lifecycle YearsOccupancy & Income 0 – 2Introduction to market 2 – 4Occupancy rises slowly 4 – 5Gradual increases in income 5 – 7Stabilized income levels 7 – 10Decline due to deterioration & obsolescence Lifecycles can be lengthened based on maintenance & upgrades

Hotel Lifecycle

Value per Hotel Room

Hotel Expenses Rooms Division Food & Beverage CategoryPercent of Expenses Salaries & wages50 – 70 Employee benefits5 – 15 Laundry7 – 12 Supplies1 - 4 CategoryPercent of Expenses Food costs35 – 45 Beverage sales20 – 30 Salaries & wages25 – 35 Employee benefits2 - 9

Income Calculations Departmental Expenses = 35% Operating Expenses = 20% Fixed Charges Expense = 5%

What Makes a Hotel Profitable? Profits = Income before capital reserve, rent, debt service, income taxes, depreciation and amortization. Hotels that have higher profit margins: Are smaller Rely less on Food & Beverage Able to control departmental expenses

Controlling Labor Costs Payroll & Benefits: = 64% of rooms department expenses = 43% of total operating expenses = 33% of total revenue Growth of hotel revenues is virtually identical to the growth of labor costs. – (Correlation coefficient of ) Ways to control labor 1.Adjust staffing 2.Adjust salaries & wages

Franchise Fees Franchise fees are the 2 nd largest operating expense after payroll