Melting Margins: Hoteliers Tackle Rising Costs at AAHOA Conference

Insurance and labor hikes were a consistent topic in Orlando, where executives urged their colleagues to focus on improving margins.
Melting Margins: Hoteliers Tackle Rising Costs at AAHOA Conference

If there’s one thing we can all agree on – brands, owners, and management companies alike – it’s that the current landscape is proving tough on margins and our primary focus as an industry should be on driving revenue and finding ways to cut costs. 

Rising operating costs, particularly in insurance and labor, were a consistent topic at the 2024 AAHOA Convention in Orlando, where executives from Best Western, Red Roof, Extended Stay America, Wyndham Hotels & Resorts, and others urged their colleagues to focus on improving margins amidst evolving market dynamics and emerging industry disruptors. Outside of costs, tightening lending markets and the need to advocate against excessive government involvement, exemplified by California's new minimum wage requirements, were identified as current challenges. 

Amidst these challenges, technology like Artificial Intelligence (AI) emerged as a potential disruptor at AAHOACON, with executives pointing to Google's AI-driven search results as one example that could have major implications on the booking process. Despite acknowledging the need for refinement, speakers underscored the opportunities AI presents for personalized marketing and enhanced guest experiences. 

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In Lodging Magazine coverage, a panel of major brand CEOs addressed pressing industry challenges, particularly rising operating costs and their impact on margins. Insurance costs emerged as a significant concern, with Larry Cuculic of Best Western highlighting the challenge and emphasizing the importance of partnerships with insurance companies tailored to owners' needs. Rajiv Trivedi, a board member at Red Roof,. underscored the broader margin challenges faced by hotel owners, encompassing labor, supply, construction, and financing costs, urging industry leaders to focus on improving margins. 

HOTELS’ coverage focused on a collective call from AAHOA and other industry leaders for less government intervention in the hotel industry. Jon Murray of Sonesta International Hotels warned of the threat of government regulation, particularly regarding minimum wage laws and franchise rules, and Geoff Ballotti of Wyndham Hotels & Resorts expressed concerns over government involvement, urging hoteliers to advocate for less interference. They highlighted instances like California's $20 minimum wage requirement, which affects margins and potentially leads to increased automation, illustrating the impact of government decisions on hotel operations. 

All of that is not to say that investing in hotels isn’t a profitable business. During AAHOACON, STR released a profitability benchmarking report looking back at 2023 as a whole, which pointed to further stabilization for the U.S. hotel industry. Total revenues and profits were strong in 2023, well above 2022 and only slightly below 2019 levels. Total Revenue Per Available Room (TRevPAR) grew by 10% compared to 2022 and Gross Operating Profit Per Available Room (GOPPAR) grew 8.2%. However, profit margins were slightly lower than 2022 even with slowing growth in expenses. GOP margins ended the year at 35.9%, and EBITDA margins were 25.1%, both 0.4 percentage points lower than 2022. 

Because of the lower need for labor, hotels in the extended-stay and select-service segments continue to be popular—and with good reason, STR says. GOP margins for these three types of hotels remain well over 40% and only two percentage points or less than peak margins in 2019. 

AAHOA Stays Strong 

The Asian American Hotel Owners Association, established in 1989, serves as a unified voice for its members and works to advocate for their interests on various fronts. At AAHOACON, the group announced updates to its 12 Points of Fair Franchising, focusing on Point 12, regarding the Sale of the Franchise System Hotel Brands. Hotel Management has all the details of the revision, which includes measures to safeguard franchisees in the face of acquisitions, mergers, or sales of hotel brands between franchisors.  

Finally, at the conclusion of AAHOACON, Texas-based hotelier Miraj S. Patel was named the newest chairman of the AAHOA 2024-25 Board of Directors, the youngest person to hold this position in AAHOA’s 35-year history at 26 years old. Hotel Management says Patel is a second-generation hotelier who grew up in his family’s first 30-room independent property. He earned a Master of Science in Business Administration and a Bachelor of Science in Hotel and Lodging Management from Johnson and Wales University in Miami. Today, Patel is president of Wayside Investment Group, a Texas-based company that specializes in opportunistic investments in the lodging and hospitality real estate sector. 

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