Despite rising operating costs, the U.S. hotel industry is in the middle of what may be the most prosperous period in its history. According to PKF Hospitality Research, in 2005 the lodging industry was able to turn an 8.8-percent rise in revenues into a smashing 15.5-percent increase in profits. It was the second consecutive year of double-digit profit growth for U.S. hotels.

One worry for many owners and operators has been the sharp increase in expenses — particularly property taxes, utilities and labor — which have inhibited even greater profit growth. Last year, the cost of operating a hotel in the U.S. grew by 6.5 percent, more than twice the rate of inflation. Utility costs rose at the fastest pace — up 13.6 percent — while labor, typically a hotel's largest cost center, increased by 5.1 percent.

Other findings from PKF-HR's recently released Trends in the Hotel Industry:

  • The rising cost of employee benefits — up 6.4 percent — was a major contributor to the overall increase in labor costs. Salaries and wages rose by 4.6 percent last year.

  • Amenity creep was at least partially responsible for a 7.3-percent hike in rooms department expenses. Items such as free high-speed Internet access, enhanced bedding, upgraded bathrooms and improved guest service and entertainment technology fueled the increase.

  • As revenues rose, so did management fees (up 8.9 percent last year) and franchise fees (up 9.8 percent).

  • Hotel property taxes increased by 6.2 percent. This was the largest increase since 1987 and reflects higher industry profits and rising property assessments that are often triggered when a hotel is sold.

  • Despite significant hurricane damage claims in the past two years, hotel insurance costs are stabilizing. While costs for property and general liability insurance doubled between 1999 and 2003, these costs only increased by 3.8 percent last year.

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