Increased business and tourism-related travel continues to drive growth in the domestic lodging sector. PricewaterhouseCoopers (PwC) reports that the U.S hotel industry posted $16.6 billion in profits last year—and that represents a 29.2% increase over 2003 profits. What’s more, PwC expects the market to post a 25% increase in 2005 to hit $20.8 billion.

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"2004 was the first time since 2000 that the lodging industry experienced an increase in total industry profits (income before taxes). Profits declined in 2001 to $16.8 billion from a high of $22.5 billion in 2000," says Bjorn Hanson, global industry leader of PricewaterhouseCoopers Hospitality & Leisure Practice.

"The dramatic increase of 7.5% for RevPAR in 2004 and increases of 7.3% in 2005 and 6.3% in 2006 (based on PwC estimates) will translate into record high profits by 2006," adds Hanson.

PwC also predicts that profit per available room will jump by 23% between 2004 and 2005 to reach $4,585. Another 18.6% jump is expected to bring profit per available room up to $5,440 in 2006.

The continuing trend of RevPAR increases and declining expenses also bosdes well for the lodging sector. RevPAR (revenue per available room) is expected to grow by 7.3% in 2005 and 6.3% in 2006. Meanwhile, increased productivity is helping hoteliers cut their expenses. Productivity as measured by the number or employees per 100 rooms has declined from 67.8 employees in 2000 to 61.2 in 2004.

Interest expense as a percentage of total revenue has also fallen dramatically from 14.2% in 1990 to 3.5% in 2000. As of the end of 2004, interest expense as a percentage of total revenue stood at 3.9%.