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Hotel Revenue
Off a Third

by David Stanowski
08 September 2009


Abstract:
The hotel industry in Galveston has been booming since 2005, but revenue is off 33% in the aftermath of Hurricane Ike, and the financial meltdown.

The Hotel Occupancy Tax also took a beating, but has returned to normal!

Introduction:
Hotel Revenue increased 83% from 2000 to 2008!


Some of the revenue growth came from the addition of 607 new rooms.

However, the revenue per room was also up 61%!


Looking at total hotel revenue on a monthly basis from January 2000 to July 2009 shows its seasonality with large spikes every June and July.

Monthly data offers the opportunity to analyze the local hotel business after Hurricane Ike, and the beginning of the financial crisis. Total revenue from September 2008 to July 2009, the latest available, was $105,570,455, versus $116,059,407 from September 2007 to July 2008; a decline of $10,488,952.

Hopefully, more clarity is available by breaking this data into two periods: September 2008 to February 2009 and March 2009 to July 2009. The first period seems to represent the post-hurricane bump when hotel revenues rose due to the increased demand for temporary housing. The later period is when the hotel business appeared to return to "normal" when most guests were tourists instead of displaced residents, and recovery workers.

From September 2008 to February 2009 revenue was $56,522,371 versus $42,904,767 from September 2007 to February 2008; a gain of $13,617,604.

However, from March 2009 to July 2009 revenue was $49,048,043 versus $73,154,640 from March 2008 to July 2008; a loss of $24,106,556, which is a decline of 33% on a year-over-year basis. If this period represents the new normal for the local hotel business, after the post-hurricane bump, it indicates that revenue could stay down a third, on a year-over-year basis, for the foreseeable future.  


The other impact of the hotel business is the amount of Hotel Occupancy Tax collected. The long term picture shows that the percentage of the total receipts that are taxable usually runs over 90%. However, under the emergency conditions after the Hurricane, the percentage plunged in 2008 to 75%!


Fortunately, by May 2009, the percentage had returned to normal, and June and July data suggests that this problem is behind us!

Taxable revenue from September 2008 to July 2009 was down $27,577,561 from the comparable period, September 2007 to July 2008. With a 15% rate on the Hotel Occupancy Tax, the City collected about $4 million less HOT during this period than it did during the same period a year ago.

Conclusion:
The hotel industry contributed $830,743,559 to the Galveston economy between 2000 and 2008. It is going to be a big drag on local commerce if revenues continue to be off 33%, or more, and HOT collections suffer a similar fate. Hotel revenues are down dramatically all around the country, so we can't expect a return to growth anytime soon.


On a somewhat related issue; "The value of international trade passing through Houston, Galveston, Texas City, Freeport, Port Lavaca and Corpus Christi seaports and George Bush Intercontinental Airport plummeted 36 percent in the first six months of this year": see article




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