Despite rising labour costs, hotel spa revenue is showing strong growth, according to the latest edition of CBRE’s Trends® in the Hotel Spa Industry. Mark VanStekelenburg outlines the key findings

For the first time in 10 years, hotel spa department revenue grew at a faster pace than other sources of hotel revenue, according to the 2016 edition of CBRE’s Trends® in the Hotel Spa Industry. The report reveals that US hotel spa departments were able to increase their revenue by 5.6 per cent between 2014 and 2015. This compares with a 3.3 per cent increase in rooms revenue and a 5.5 per cent increase in total hotel revenue for the properties that were included in the survey sample, for the same time period.

Significantly, these figures mark the first time since the 2007 edition of the publication that spa revenue growth has surpassed rooms revenue growth.

CBRE Hotels’ Americas Research is projecting modest gains in rooms revenue for the next few years, as the US lodging industry operates at the top of the business cycle. Therefore, hotel operators will need to look at other operating departments – like spa – to accelerate total hotel revenue growth.

At the same time, health and wellness is becoming an increasingly important component of everyday life. Though historically considered an exclusively high-end hotel amenity, the integration of health and travel is now expected. Westin recently partnered with both Fitbit and New Balance to help its guests continue their fitness routines during their stay. Fairmont Hotels & Resorts has teamed up with Reebok. InterContinental’s new wellness-oriented brand, Even Hotels, has seven properties in the development pipeline, while health club operator Equinox is entering the luxury lifestyle hotel space, launching its first hotel in New York City in 2019 (see SB17/Q3).

The integration of health and wellness into a hotel operation is a distinguishing quality for consumers seeking balance in all aspects of life, including travel.

Spa catches up
During the Great Recession, spa department revenue was hit harder than other hotel revenues, extending the time needed for revenue to recover. It wasn’t until 2015 that spa revenue growth exceeded the pace of rooms revenue growth, signalling that the spa department is finally catching up in its recovery, following the 2008 recession. Spa profits have seen double-digit growth every year since 2010, with the exception of more modest growth in 2012.

Strong profit growth
While hotel spa department revenue is showing relatively strong growth, hotel spa department profits are increasing at an even greater pace. In 2015, hotel spa managers were able to convert the 5.6 per cent increase in revenues into a strong 17.7 per cent boost in department profits. They were able to achieve such strong gains in profits because they controlled their expenses; from 2014 to 2015, the combination of cost of goods sold, labour costs and other operating expenses increased by just 2.1 per cent.
Labour costs comprise approximately three-quarters of operating expenses for a hotel spa. Given the surge in labour costs that we’ve seen in recent years, spa managers should be commended for achieving such strong flow-through within their departments. In fact, it was a reduction in other operating expenses that offset the 5.8 per cent increase in labour costs and allowed hotel spas to achieve such a strong growth in profits.

A bright future
Recent economic reports have indicated increases in retail sales, auto sales, building materials and health and beauty products. This is an indication that people are spending on themselves and bodes well for travel. Additional research shows that travellers are more mindful of their wellbeing when choosing their lodging. Hotels have an opportunity to take advantage of this trend, not just by promoting their spas, but also by offering other health and wellness amenities and services throughout the hotel.

As an increasing number of people are travelling, the demographics are changing, causing hotel companies to refocus their offerings to ensure they’re meeting the needs of their guests. Leisure and group travel are also on the rise, and hotels must strive to make sure the health and wellness needs of these different guests are addressed. Hotel companies are creating programmes – and even entire brands – with a focus on providing the consumer with the basics of health and wellness. The future looks bright for the hotel spa industry.