Originally published Sep. 12, 2012William F. Reed, FASAE, CMP | MEETINGSNET
Everyone’s heard about RevPAR, but do you really know exactly what it is?
RevPAR is one of the most important measurements in the hotel industry today. RevPAR is an acronym that stands for Revenue Per Available Room. This is different from average rate in that it is a measure that divides revenue by the number of available rooms, not the number of occupied rooms. It is a measure of how well the hotel has been able to fill rooms off season, when demand is low even if rates are also low, and how well they fill the rooms and maximize the rate in high season, when there is high demand for hotel rooms.
For instance, a hotel with 500 rooms will have 182,500 available rooms in a year (500 rooms times 365 days in a year). If that same hotel ran a 75 percent occupancy, it would have 136,875 occupied rooms that same year (182,500 available rooms multiplied by 75 percent). Let’s say in a given year that this hotel has room revenue of $27,375,000. Its average rate would be $200 ($27,375,000 divided by its 136,875 occupied rooms). The hotel’s RevPAR would be $150 because the revenue would have been divided by the 182,500 available rooms. RevPAR is a better measurement because it shows how well the hotel was able to fill rooms (regardless of price) in low-demand periods, and how well they did filling rooms at the highest rate possible when demand is high.
What is the difference, you ask? A hotel could have sold all its rooms during the peak and shoulder seasons at $200 to get an average rate of $200, and left the hotel completely empty off season when it needs occupancy to pay for fixed expenses (salaries, debt service, etc.) when it could have sold some rooms at a value rate of $100 each.
Who looks at RevPAR? A lot of people, including hotel owners, lending institutions, and management companies. The biggest reason that it is so important is that hotel owners use it as a benchmark to see which hotel management company (Four Seasons, Ritz, Fairmont, Starwood, Marriott, et al.) produces the highest RevPAR in a given market. This helps them to select which company they hire to manage their hotel.
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