Most people dream about staying at one of the most luxurious hotel chains in the world, like Burj al Arab. Excellent room service, the hotel staff working around you 24/7; luxury hotels provide everything their guests need to feel like royalty. Nowadays, top upscale hotel brands go to even more extraordinary lengths to keep their guests satisfied.
From gourmet feasts and exceptional service to the latest technological solutions that allow hotels to take their user and customer experiences to the next level, staying at luxurious hotels can indeed be one of the most precious and unique experiences in life.
But what happens if you’re a hotel owner facing the challenge of ensuring a steady source of revenue?
If you’re a hotel owner in charge of a hospitality business, knowing how to calculate your hotel profit is vital in staying competitive and relevant in the overcrowded business landscape. Let’s see how to keep on top of your hotel profit game, as well as how top hotel companies make their profits.
How to measure a hotel’s profitability
When running a hotel business, profitability is one of the essential aspects of your success. It refers to the ability of your hotel to generate revenue from providing its services over a given period.
The best method for calculating profitability is to rely on profitability ratios. These ratios are complete insights into how your hotel brand performs and can be used as key tools for accurately calculating your profits by analyzing financial statements.
There are three main profitability ratios:
- Return on investment (ROI) – calculates how profitable your hotel’s invested capital can be. This capital includes fixed assets and net working capital and is considered a vital financial index for hotel owners. It helps determine your earnings on invested capital, both borrowed and owned. You can easily calculate your ROI by dividing your operating income by its invested capital and multiplying the result by 100 to get the exact ROI percentage.
- Return on equity (ROE) – ROE allows you to calculate the overall profit you make by investing assets in the form of risk capital or equity. This ratio should always be higher or at least equal to the return on government bonds.
- Return on sales (ROS) – this ratio helps you calculate how much your hotel earns from its sales revenue and is an excellent tool for measuring your performance compared to your main competitors. ROS shows you the average profit margin your hotel makes before financial expenses and taxes.
You calculate your hotel profit by measuring these ratios, focusing on maximizing profit and sales – the two most important ROS factors. You can also use additional key performance indicators to calculate your hotel revenue. Now, since you have some basic idea on how to calculate your hotel profit, let’s see some of the most profitable hotels in 2021.
Top profitable hotels and what makes them so successful
The Marriott International hotel chain involves three hotel companies – Delta, Marriott, and Ritz-Carlton. According to Statista, Marriott is considered the most profitable luxury hotel that generated more sales revenue than any other hotel chain in 2019.
With 250,000 rooms over 101 properties worldwide within their schedule, this hotel chain doesn’t plan on stopping its rapid expansion any time soon. When it comes to making a profit, Marriott’s focus is increasing earnings per share.
They also profit from signing, acquiring, and building new properties for their hotels and have repurchased $174 million of stock. With an EPS of $0.87, EBITDA of $457 million, and 5.4% RevPAR, Marriott International is the best example of what drives a profitable hotel in 2021. The current revenue is estimated at $10.6 billion.
2. Starwood Hotels & Resorts
Starwood Hotels & Resorts Worldwide Inc. includes 4 Points by Sheraton, Sheraton, and Westin hotel chains. HOT is another incredibly profitable and successful hotel brand with the main focus on finding the most effective and lucrative ways to increase EPS.
Their primary strategy for making a profit is repurchasing shares. However, while HOT may not be as profitable as Marriott, the brand still managed to repurchase 1.2 million shares and bring in a total of $228 million in share repurchases alone in 2015.
HOT has a net income of $143 million, an EBITDA of $311 million, EPS of $0.84, and a $0.375 dividend, and is still heavily invested in its efforts to add 14,400 rooms.
3. Hyatt Hotels
Hyatt may not be the most profitable hotel on our list, but it sure is one of the most famous hotel companies in the world. Including Hyatt Regency, Grand Hyatt, and Park Hyatt in their chain, Hyatt Hotels Corp is one of the most resilient hotel brands worldwide.
As one of the highest-class luxury hotel chains, Hyatt’s money-making strategy greatly relies on buying stocks, repurchasing shares, and acquiring properties across the globe. The company currently has 600 properties and had spent almost $187 million on purchasing stocks in 2015 alone. Hyatt’s current revenue is estimated at $2.1 billion.
Hilton is one of the leading hotel brands worldwide. It has also been the most valuable hotel company for many years, even though the brand experienced a 30% drop in brand value due to the coronavirus pandemic.
However, even with the brand value dropping to $7.6 billion, Hilton’s strategy for growing its business is still its biggest strength. Despite the pandemic, the brand has announced that they plan to add 17,400 new rooms to their pipeline.
That is over 400,000 new rooms planned in total. Hilton and its seven additional hotel brands are about to reach $13,8 billion in total brand value with such an incredible hotel portfolio under the belt.
Taj is a new hotel brand in the sector, but the company has already earned an AAA strength rating. This hotel brand has a solid corporate reputation, accompanied by high staff satisfaction, incredible customer familiarity, and a keen eye for the most profitable marketing investments.
According to these driving factors, Taj is one of the strongest hotel brands globally, with a total brand value of $296 million. The hotel also has a very high Brand Strength Index score of 89.3 out of 100.
The reason why Taj is so profitable is the brand’s immensely successful 5-year plan with the primary goal of selling non-core assets and overcoming the biggest challenges of the outbreak of the coronavirus.
According to the hotel’s worldwide portfolio, the Wyndham Hotel Group has almost 9300 units in 75 countries in their possession, putting this hotel group in the leading position in ranking the top hotel companies by the number of properties alone.
The hotel’s biggest strengths are upscale accommodation and a robust economic approach, allowing the group to thrive and grow. With almost 830,000 rooms, the Wyndham Hotel Group brings in $4 billion of annual revenue.
7. Best Western
Best Western is a private ownership hotel operator encompassing three innovative hospitality brands – Best Western Premier, Best Western Plus, and Best Western. With more than 2,000 hotel units in the United States alone in their possession, this is one of the most successful hotel chains in North America.
The brand hosts over 58 million members in Canada and the US, winning multiple awards for providing exceptional services. The total brand value is estimated at $6 billion. Their biggest strength is their loyalty program, Best Western Rewards, which gathers over 35 million members and has earned the brand’s top rankings on the World Report’s Best Hotel Rewards Programs.
With 25 hotel brands in their chain, AccorHotels is one of the largest hotel brands outside of the United States. A host to more than half a million guests every day, AccorHotels made a huge success by merging with FRHI Hotels & Resorts.
Club AccorHotels, the hotel’s popular loyalty program, gathers more than 27 million guests from all over the world and covers 4,530 hotels on offer. The brand’s biggest strength is catering to all types of guests, regardless of their budget. That is why AccorHotels includes both luxury brands and valuable but affordable comfort brands. The brand’s total value is estimated at $2.24 billion.
This hotel group is already a well-established brand in the hospitality industry, known for building superior hotel brands. The group owns more than 5,400 hotel units worldwide and has gained a total of $1.784 billion in revenue in 2017 alone.
However, the key to their success was investing in Regent Hotels and buying a 51% stake. With 974 properties in possession, the group has expanded into a diverse client market, serving guests from more than 100 countries worldwide.
10. Choice Hotels
Choice Hotels is one of the most successful and most prominent hotel chains globally, mainly focused on franchising lodging services. The chain gathers well-established names from the hospitality world, such as Comfort Suites, Comfort Inn, Econo Lodge, and Clarion. Choice Hotels caters to both leisure and corporate clientele.
The brand has more than 6,300 properties with 6,800 rooms on offer, ranging from top luxury to economy properties. Their total brand value is $1 billion at the moment.
Getting into hotel revenue management sounds like a tedious and daunting task, but it isn’t that hard to get on top of it. It’s vital to stay up-to-date with the latest key performance indicators and ratios to know what makes your hotel, market, guests, and industry tick at any time. Once you have all that under your fingertips, forecasting your performance and profits will become much more manageable.
Graduated from Standford University, Arielle has over 5 years of experience in the Hospitality industry. She holds an MBA in business administration from the IDC Herzliya, Israel. She currently works as Account Manager at UpStay, building and maintaining strong, long-lasting customer relationships. She is deeply passionate about helping hoteliers unlock significant new revenue streams from unsold premium inventory.