Mr. Mandelbaum

Hotel Market Reports

Measuring Business Interrupted by Hurricane Katrina

By Robert Mandelbaum, Director of Research Information Services, CBRE Hotels' Americas Research

Gather Your Historical Data

What is frequently overlooked in the immediate turmoil is the need to secure important data and documents. This information is especially vital for those owners that wish to recover lost business income from their insurance company. While the actual filing of claims and negotiations may not occur until a year or two after the horrific event, several pieces of data and documents need to be gathered in the short-term in order to achieve a favorable settlement later on.

After working with our clients to recoup business interruption benefits from their insurance companies, we have found certain data and documents to be extremely useful in our calculations of lost revenues and profits. The following is a partial list of reports (effective the day of the catastrophic event) that should be gathered and preserved by management.

The Lost Business Calculation

Once the historical performance data is gathered from the documents listed above, the next step is to estimate how the hotel would have performed if the catastrophic event had not occurred. To prepare this forecast, we utilize budget, marketing plan, reservation, and group booking information contained in the secured documents. In addition, we rely on the most recent forecast developed prior to the catastrophic event for the subject property's MSA.

Using the MSA forecast as a baseline for future supply, demand, and revenue conditions within the market for the projection period, we then estimate the market penetration of the subject property based on historical correlations to MSA performance. This provides us with estimates of the potential rooms revenue the subject property would have earned had the catastrophic event not occurred. From these estimates of rooms revenue, we then prepare projections of net income using historical financial statements from the subject property, as well as data from our firm's Trends in the Hotel Industry database.

The calculation of lost business is derived from the difference between the performance of the subject property estimated under the "no catastrophic event" scenario, and the data from the actual performance of the hotel during the projection period. Estimates can be made for lost room nights, revenue, and net income.

Objectivity Is Key

A key to the lost business calculation is the ability to provide an objective estimate of the "no catastrophic event" scenario. The foundations of this estimate are the actual advanced booking data from the subject hotel and the MSA forecast. Since the MSA forecast was developed prior to the catastrophic event, it can be viewed as the prevailing outlook for future market conditions as of the day of the event.

In conjunction with Torto Wheaton Research, PKF Hospitality Research prepares econometric forecasts of hotel supply, demand, occupancy, ADR, and RevPAR for 53 major markets across the nation. The forecast reports are entitled Hotel Outlook. Each Hotel Outlook report contains forecast performance data for both full-service and limited-service hotels in a given market. The forecasts are made for a six-year period, and are updated every three months. The Hotel Outlook econometric model is based on data from, Smith Travel Research, Torto Wheaton Research, and PKF Hospitality Research. An accuracy analysis conducted in early 2005 proved the Hotel Outlook forecasts to be 99.9 percent accurate.

Hypothetical Lost Revenue For New Orleans

To depict how lost business can be calculated, we have prepared a hypothetical lost rooms revenue calculation for the full-service hotels in the New Orleans MSA. It is very important to note that this example is intended solely to demonstrate our lost business methodology. The two recovery scenarios outlined below do not necessarily represent our firm's opinion on the future performance of the New Orleans full-service hotel market.

The Fall 2005 Hotel Outlook forecast for the New Orleans MSA full-service hotel market was developed on August 18, 2005, a full 11 days before Hurricane Katrina hit the coast of Louisiana. The Fall 2005 forecast projected a 65.8 percent increase in the rooms revenue collected by New Orleans full-service hotels from year-end 2004 to 2014. The bases for this forecast were a 27.6 percent increase in supply, a 25.4 percent increase in demand, and a 32.2 percent jump in room rates. In aggregate, the full-service hotels of New Orleans were forecast to generate an additional $526.3 million in rooms revenue from 2004 to 2014.

With the "what would have been" scenario developed based on the Hotel Outlook forecast, we then put together two hypothetical recovery scenarios for the New Orleans full-service hotel market. One scenario is based on a slower and weaker recovery pattern. The other assumes a quicker and stronger recovery.

The following bullet statements state the assumptions made for the two hypothetical recovery scenarios:

Slow / Weak Recovery

Actual room revenue data was used for the operating period January 1, 2005 through August 28, 2005. Based on the preceding supply assumptions, we assumed demand and ADR growth rates for each year from 2006 through 2014. The net result was a calculation of rooms revenue collected for each year from 2006 through 2014 under each scenario. Chart A compares the annual rooms revenue growth from the Fall 2005 Hotel Outlook forecast to the rooms revenue generated under the two hypothetical recovery scenarios.

By subtracting the rooms revenue of the recovery scenarios from the rooms revenue of the Hotel Outlook forecast, we are able to calculate the revenue deficits (Chart B). As would be expected, the revenue deficits are greater under the slow / weak scenario, especially during the initial years of the projection period.

Given the assumptions made for this demonstration, a quick / strong recovery scenario would result in a total rooms revenue deficit of approximately $1.8 billion over the 10 year projection period (Chart C). On the other hand, a slower and weaker recover would generate a rooms revenue deficit of $3.0 billion.

The Bottom Line Really Counts

It is important to note that the preceding example portrayed the methodology used to calculate lost revenue. For most business interruption insurance claims, it is the lost net income that would be estimated. As mentioned before, the translation of revenues to profits can be done based on the historical performance of the subject property, as well as industry wide financial benchmarks.

Receiving your business interruption insurance benefits never fully alleviates the emotional damage and pain caused by a catastrophic event. However, the funds do go a long way to help preserve "the business."

Robert Mandelbaum is the Director of Research Information Services for CBRE Hotels’ Americas Research. He is based in the firm’s Atlanta office, where he is in charge of Research Information Services. Research Information Services produces the annual Trends® in the Hotel Industry statistical report, along with customized financial and operational analyses for client projectsMr. Mandelbaum began his hospitality industry career with Holiday Inns, Inc. in Memphis, Tennessee. He started his career with the firm in 1983 in the Memphis office of Pannell Kerr Forster, where he conducted market and financial feasibility studies and operational analyses for hotel, restaurant, club, and conference center clients. Prior to moving to Atlanta in November 1997, he also worked in PKF’s San Francisco office. Mr. Mandelbaum can be contacted at 404-8902-3959 or Please visit for more information. Extended Bio... retains the copyright to the articles published in the Hotel Business Review. Articles cannot be republished without prior written consent by

Receive our daily newsletter with the latest breaking news and hotel management best practices.
Hotel Business Review on Facebook
General Search:

JULY: Hotel Spa: Measuring the Results

Robert Vance

Wellness tourism not only drives revenue, it is a required service for any luxury property. Total revenue for the spa industry surpassed $16 billion in 2015 and is anticipated to exceed $20 billion by 2020. Further encouragement, a recent ISPA study showed that 56% of millennials have visited a spa within the last year; never have we seen a demographic so involved in wellness. Guests are savvier when it comes to healthy hotel concepts and hold higher programming expectations. Thus, as the hospitality industry commits to developing wellness platforms, the rewards of investing in guest health far outweigh the risks. READ MORE

Sylvain Pasdeloup

Many luxury, five-star beach resorts on the world-famous holiday island destination of Bali put their spa and wellness services and facilities as among their top features. Many also promote their spa and wellness features as ‘one-stop’ retreat highlights, with all-round spa-and-stay packages available, tailored to cover the essentials, ranging from health-conscious dining (oftentimes with calorie counts and other nutritional aspects taken in), various fitness and recreational activities to be had on the resort grounds, with treatments at the resort’s dedicated spa facility or onsite beauty clinics. The trends in spa and wellness have recently gone further with science-based aspects included. READ MORE

Michael G. Tompkins

In the last decade, we have seen an increased willingness of hospitality and spa companies to cross geographical and cultural divides and move into markets outside of their traditional regions. It is really a function of and a result of globalization, which is impacting all business sectors. One geographical jump that seems to be getting a lot of attention these days is the Asian hospitality market. Big investors in the East are diving head-first into the Western wellness boom by buying landmark spa properties in the United States, recruiting top executive talent to lead their spa divisions in Asia, and integrating their traditional spa modalities with modern wellness culture. READ MORE

Claire Way

How many of us would admit that we are addicted to our screens? The need to be in the know is a habit that is hard to break. Parents, recognizing this addiction in themselves, and the effects on their well-being are increasingly concerned about the effect screen addiction will have on their children. To counteract this, parents are investing time and money in helping their kids develop better habits; this is where spas can play a key role. Encouraging children to connect with wellness for prevention ensures they grow-up with the knowledge and passion to remain in the best health. READ MORE

Coming Up In The August Online Hotel Business Review

Feature Focus
Food & Beverage: Multiplicity and Diversity are Key
The challenge for hotel food and beverage operations is to serve the personal tastes and needs of an increasingly diverse population and, at the same time, to keep up with ever-evolving industry trends. In order to accomplish this, restaurateurs and hoteliers have to flex their creative muscles and pull out all the stops to satisfy their various audiences. One way to achieve this is to utilize existing food spaces in multiple ways at different times of the day. Lunch can be casual and fast, while dinnertime can be more formal and slower paced. The same restaurant can offer counter service by day but provide table service by night, with a completely different menu and atmosphere. Changes in music, lighting, uniforms and tabletop design contribute to its transformation. This multi- purpose approach seeks to meet the dining needs of guests as they change throughout the day. Today’s restaurants also have to go to great lengths to fulfill all the diverse dietary preferences of their guests. The popularity of plant-based, paleo, vegan, and gluten and allergen-free diets means that traditional menus must evolve from protein-heavy, carb-loaded offerings to those featuring more vegetables and legumes. Chefs are doing creative things with vegetables, such as experimenting with global cuisines or incorporating new vegetable hybrids into their dishes. Another trend is an emphasis on bold and creative flavors. From chili oil to sriracha to spicy maple syrup, entrees, desserts and beverages are all being enhanced with spice and heat. The August issue of the Hotel Business Review will document the trends and challenges in the food and beverage sector, and report on what some leading hotels are doing to enhance this area of their business.