The recovery of the lodging industry from the depths of the recent industry recession has been driven by a surprisingly strong surge in demand.

Despite sluggish growth in the economy, lodging demand has grown by an annual average rate of 5.0 percent since 2009. Hotel managers, having certainly enjoyed the rising levels of guests, and are now beginning to leverage the improved occupancy levels by raising their room rates.

What has lagged, however, has been the ability of managers to increase the extra spend of guests while inside the hotel. In 2010, the first year of the recovery, we saw increases in the volume of rooms revenue (5.3%) and food and beverage sales (5.6%), the two biggest sources of revenue for hotels. However, the combined revenues from all other sources declined by 1.4 percent that year.

One of the "other" revenue sources for some hotels is a spa. Unfortunately for those hotels with a spa, revenue in that department declined by 10.5 percent in 2010. This is not entirely surprising. If we look to Maslow and his hierarchy of needs, we understand that basic needs include food and shelter, and do not include perceived "luxuries" such as spa and wellness treatments. In a recession and in the initial recovery that follows, consumers are hesitant to spend on products and services that are beyond basic necessities.

The good news, however, is that as the economy slowly improved, we observed a very strong 8.3 percent increase in spa department revenue in 2011. While spa revenue is still below pre-recession peak levels, we do anticipate continued growth into the foreseeable future.

Revenues Rise For All

The beginning of the recovery in 2011 was enjoyed by all types of hotel spas regardless of location, volume of revenue, or size of the facilities. In general, mid-sized hotel spa operations registered the greatest gains in revenue from 2010 to 2011. Based on number of hotel rooms, square feet, and number of treatment rooms, all hotel spas in the mid-categories of these measurements saw their revenue increase by double-digits in 2011. Analyzing the data by type of hotel, we observed similar revenue increases for spas located in both resort (8.4%) and urban (8.2%) hotels.

While total spa department revenue increased 8.3 percent, when measured on a dollar per occupied room basis, the revenue increase was just 3.3 percent. This implies that spa managers benefited more from an increase in the capture of in-house guests, as opposed to a higher "spend" per guest. The increased customer count could also have been influenced by a rise in the number of patrons from the local community.

Massage services continue to generate the most revenue for hotel spas. Sales from massages averaged 57.0 percent of total department revenue, and grew by 9.2 percent from 2010 to 2011. Other significant spa services enjoying strong growth in revenue during 2011 were Skin Care and Body Work (8.0%), Salon Services (8.1%), and Retail (13.4%). One thought on the higher percentage increase in Retail revenue might be the spa guest taking home products in an effort to extend the effects of the spa treatment, before committing to more frequent spa visits.

Only two service categories suffered a decline in revenue during the year. Daily Facility Fees dropped by 7.5 percent in 2011, while Fitness and Personal Training revenues fell by 2.2 percent. It should be noted that Membership Fee Revenue did increase by 6.4 percent, therefore some of the daily facility patrons may have converted to spa members in 2011.

Expenses Under Control

While revenues rose by 8.3 percent, both urban and resort spa managers were also able to limit the growth in total departmental expenses to just 5.5 percent. Please note that according to the Uniform System of Accounts for the Lodging Industry, and similar to other hotel revenue departments such as food and beverage, spa department expenses do not include overhead costs such as administration, sales and marketing, maintenance, and utilities.

Like most operating departments within a hotel, labor costs are the single largest expense item for spas. In 2011, the combined costs of salaries, wages, bonuses, and payroll-related expenses equaled 55.6 percent of spa department revenue, or 72.9 percent of total departmental expenses. From 2010 to 2011, spa labor costs increased by 4.9 percent.

For hotel spas that sell clothing and merchandise, they experienced a stout 14.7 percent increase in the cost of the retail goods they sold. Unfortunately, this does not compare favorably to the concurrent 13.4 percent increase in retail sales. All other departmental operating expenses (supplies, laundry, linens, etc.) rose by a combined 4.7 percent.

Profits Prevail

Like revenues, all types of hotel spas enjoyed growth in profits in 2011. On average, the hotel spas in the survey sample achieved an 18.5 percent increase in departmental profits from 2010 to 2011.

The level of profit growth was relatively consistent with the overall results when analyzed by the location of the hotel, and the number of square feet within the spa. However, when segregating the sample by the total volume of spa revenue, we did observe some distinctive differences in the percent change in profits.

Hotel spas with more than $3 million in revenue saw their profits rise by 8.0 percent. On the other hand, smaller spas with under $1 million in revenue enjoyed a very strong 61.4 percent rise in profits. Of course, it needs to be noted that the large volume spa operations average 13 times more dollars in profits than their smaller counterparts, which has a significant impact on the size of the percentage increases.

Growth By Price

Based on its December 2012 Hotel Horizons® forecast report, PKF Hospitality Research, LLC estimates that RevPAR for U.S. hotels grew by 6.8 percent in 2012, and will continue to grow at an annual average rate of 6.4 percent through 2016. It is important to note that going forward, the majority of RevPAR growth will be achieved through increases in room rates, not gains in occupancy. This trend is particularly true for luxury and upper-upscale properties, the two lodging categories in which most hotel spas are located.

The implication for hotel spa managers is clear. The pace of growth in hotel guest counts is going to diminish over the next few years. Therefore, in order to perpetuate the recovery that started in 2011, hotel spa managers will have to generate revenue growth by increasing the capture rate of in-house guests, sourcing additional local customers, and/or raising the amount the spa customers spend per visit.

The Impacts On Spas

As explained herein, hotel spas are impacted by the economy at large and by the performance and trends of the lodging industry, in particular. Additionally, demographics, psychographics and behavior trends can also play an important part in the performance of spas. The deterioration of our nation's health and excessive rates of obesity, resulting in record high cost of health care (or more appropriately, sick care), have been widely discussed. Further, we have an aging population that includes 76 million baby boomers, the oldest of which will turn 67 years old in 2013.

At the core of spa is taking care of one's self. As more attention is given – and action is taken – to improving poor lifestyle and overall health and proactively maintaining good health through better lifestyle choices, we can expect to see demand for spas increase as a result. Synergistically, spa marketing and messaging should play to this trends and offer additional support in shifting popular thinking toward a more wellness-based lifestyle approach. The potential result? Hotel spas sustainably 'doing well, by doing good'.







Andrea Foster is Vice President; National Director of Spa & Wellness Consulting, for PKF Consulting USA, LLC. She is located in the firm's Boston office. Robert Mandelbaum is Director of Research Information Services for PKF Hospitality Research, LLC and is located in Atlanta.

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