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Cost cutting contributes to bumper profits growth across Europe, Profit hits low in the ME & Africa.
Tuesday, 5th September 2017
Source : HotStats

A 5.6% increase in TrevPAR, in addition to cost savings, meant that hotels in Europe recorded a hearty 10.6% year-on-year increase in GOPPAR in July, profit hits low at hotels in the Middle East & Africa.

The 5.9% increase in RevPAR this month was driven by a 2.0 percentage point increase in room occupancy, to 78.4%, as well as a 3.1% increase in achieved average room rate, to €166.40.

The year-on-year growth in average room rate this month is more notable as waning commercial demand means that July is typically a more challenging month in terms of price for hotels in Europe. However, the rate recorded this month was 5.1% above the year-to-date average.

In addition to the year-on-year increase in RevPAR, hotels in Europe recorded an increase in non-rooms revenues, including Food and Beverage (+4.8%) and Conference and Banqueting (+7.2%), which contributed to the 5.6% increase in TrevPAR, to €186.34.

Profit & Loss Key Performance Indicators – Europe (in EUR)

July 2017 v July 2016

  • RevPAR: +5.9% to €130.52
  • TrevPAR: +5.6% to €186.34
  • Payroll: - 0.8 pts to 30.6%
  • GOPPAR: +10.6% to €72.26

The cost savings, which included a 0.8 percentage point reduction in Payroll to 30.6% of total revenue, crowned a stellar month of top and bottom line growth, with hotels in Europe recording a 10.6% increase in GOPPAR, to €72.26. This is equivalent to a profit conversion of 38.8% of total revenue.

“The figures for July paint a very positive picture of performance for hotels across Europe and add to the strong growth so far in 2017. What is particularly pleasing is that the growth this month was led by a number of hotel markets which have made a return to stronger performance levels after particularly challenging trading conditions in recent years,” said Pablo Alonso, CEO of HotStats.

For hotels in Brussels, the 33.5% increase in RevPAR in July contributed to the 19.1% increase for year-to-date 2017, to €98.65, and goes some way to compensating for the 20.2% decline in 2016 in the aftermath of the terrorist attacks in March.

That said, there is evidence to suggest that the top line bounce back for hotels in Brussels is being driven by an increase in volume, which grew by 17.9 percentage points year-on-year in July, but at the expense of a reduction in rate, which fell by 0.2%, to €120.14.

Profit & Loss Key Performance Indicators – Brussels (in EUR)

July 2017 v July 2016

  • RevPAR: +33.5% to €85.19
  • TrevPAR: +27.3% to €113.09
  • Payroll: - 5.6 pts to 50.7%
  • GOPPAR: +284.3% to €15.64

The need to drive RevPAR through volume was even more imperative this month as activity in the European Parliament slowed for the summer and there was a notable reduction in demand from the high-yielding contracted corporate and residential conference segments, evidenced by the proportion of volume from the commercial segments falling to just 32.5% in July, against a year-to-date average of 44.3%.

The significant uplift in volume at hotels in Brussels also fuelled growth in non-rooms revenues, which contributed to a 27.3% increase in TrevPAR, to €113.09, but resulted in non-rooms revenue dwindling to just 24.7% of total revenue this month.

Despite the 5.6-percentage point reduction, payroll levels at hotels in Brussels remained extremely high, at 50.7% of total revenue. As a result, profit conversion remained low this month at just 13.8% of total revenue.

July was also a very strong month of performance for hotels in Istanbul. The year-on-year uplift this month primarily represented a return to normality after top and bottom line performance crashed in July 2016 in the midst of the failed coup.

In addition to a 36.6 percentage point increase in room occupancy in July, a 22.1% uplift in achieved average room rate contributed to the 155.7% increase in RevPAR, to €70.97. Whilst this represents a significant increase on the same period in 2016, it is less than €6.00 ahead of July 2015, at €65.01.
“The growth in the challenged markets this month will provide some welcome respite to owners and operators of properties in those locations.

And whilst it is almost a false positive, Istanbul hoteliers will toast the growth as it comes amidst extremely challenging trading conditions, which have been as a result of significant additions to stock, political uncertainty and terrorist activity,” added Pablo.

The realignment in TrevPAR, which increased by 127.5%, in addition to a 34.1-percentage point saving in Payroll to 32.5% of total revenue, meant hotels in Istanbul were able to bring GOPPAR back into the black, up to €33.34 from -€7.05 during the same period in 2016.

Profit & Loss Key Performance Indicators – Istanbul (in EUR)

July 2017 v July 2016

  • RevPAR: +155.7% to €70.97
  • TrevPAR: +127.5% to €99.77
  • Payroll: - 34.1 pts to 32.5%
  • GOPPAR: +572.9% to €33.34

Profit Hits Low at Hotels in the Middle East & Africa

For hotels in the Middle East & Africa, July marked a low in recent top and bottom line performance as demand levels remained soft during the stifling summer months, according to the latest worldwide poll of full-service hotels from HotStats. 

Whilst hotels in the Middle East & Africa recorded a 1.0 percentage point increase in room occupancy in July, to 60.4%, it was at the expense of a 12.7% drop in achieved average room rate, to $140.73, as low demand levels forced hoteliers to discount rates in an attempt to drive top line revenues.

However, as a result of the movement in volume and price, RevPAR at hotels in the region dropped to a monthly five-year low of $84.98, which surpasses the previous low of $93.57 recorded in June 2016.

Further woe was heaped on to hoteliers in the Middle East & Africa as declines in non-rooms revenues, including Food and Beverage (-6.2%) and Conference and Banqueting (-1.0%), contributed to the 9.1% year-on-year drop in TrevPAR, to $149.31. Again, this represented a recent historic low in this metric for hotels in the region.

Profit & Loss Key Performance Indicators – Middle East & Africa (in USD)

July 2017 v July 2016

  • RevPAR: -11.2% to $84.98
  • TrevPAR: -9.1% to $149.31
  • Payroll: +3.2 pts to 34.5%
  • GOPPAR: -27.3% to $35.47

Although hotels in the Middle East & Africa did their utmost to arrest escalating costs, Payroll levels increased by 3.2 percentage points, to 34.5% of total revenue, punctuating a poor month of performance with GOPPAR recorded at just $35.47.

Profit per room this month was at the lowest level recorded in recent years and was 51.8% below the average for the 12-months to July 2017, at $73.63. As a result, profit conversion at hotels in the Middle East & Africa fell to a low of just 23.8% of total revenue.

“The poor profit conversion this month will be unfamiliar to hoteliers in the Middle East & Africa who have become accustomed to recording punchy bottom line performance.

However, much to the disappointment of hotel owners and operators in the region, the challenging market conditions are likely to continue in the short term. This is not only due to the laboured recovery of the oil industry, but many of the new hotel developments which were either late in the planning stages or had already broken ground when the crisis hit, are now coming to fruition,” said Pablo Alonso, CEO of HotStats. 

Whilst the performance for hotels in Muscat was stronger than in June, year-on-year properties in the capital of Oman suffered significant declines across all key metrics this month, which included a 177.7% drop in profit per room to -$6.76.

Profit & Loss Key Performance Indicators – Muscat (in USD)

July 2017 v July 2016

  • RevPAR: -24.1% to $53.80
  • TrevPAR: -24.4% to $121.28
  • Payroll: +10.0 pts to 60.3%
  • GOPPAR: -177.7% to -$6.76

In addition to relying heavily on demand from the oil industry, additions to hotel supply in Muscat in 2017 have put further pressure on hotel performance and have included the three-star 152-bedroom Al Irfan International Hotel and 120-bedroom Muttrah Corniche and four-star 215-bedroom Sundus Rotana.

“As in other locations across the region, it is noteworthy that additions to supply in Muscat are primarily in the mid-market segment, as these destinations look to broaden their appeal to leisure visitors. However, this is likely to not only dilute demand levels but will put real pressure on room rates at the upscale hotels polled in the HotStats sample,” added Pablo.

Amongst political demonstrations and disruption in the city, hotels in Amman performed strongly this month, with a 7.8 percentage point increase in room occupancy, to 60.8%, successfully offsetting the 6.9% decline in achieved average room rate, to $144.84.

This month was a welcome respite from the year-to-date performance for hotels in Amman, which have struggled to grow top and bottom line performance so far this year, illustrated by the -8.0% year-to-date RevPAR decline, to $74.74.

The growth this month was even more impressive considering the contribution from the high-yielding contracted corporate and residential conference segments fell, to 33.3% of rooms revenue, against a year-to-date average of 40.7%.

Despite the uplift in volume, hotels in Amman suffered declines in non-rooms, including Food and Beverage (-3.0%), but this was not to the detriment of TrevPAR, which increased by 2.6% to $158.01.

Due to the growth in top line revenue and cost savings, hotels in Amman recorded a 10.8% increase in GOPPAR, to $53.22. This went someway to offsetting the 24.9% year-to-date profit per room decline, to $30.39.

Profit & Loss Key Performance Indicators – Amman (in USD)

July 2017 v July 2016

  • RevPAR: +6.8% to $88.02
  • TrevPAR: +2.6% to $158.01
  • Payroll: -0.7 pts to 27.2%
  • GOPPAR: +10.8% to $53.22
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