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Plummeting rate hits MEA hotel profits

DUBAI, April 5, 2018

The positive start to the year for hotels in the Middle East & Africa was short lived as profit per room fell by 7.8 per cent in February, led by a significant year-on-year decline in achieved average room rate, according to the latest worldwide poll of full-service hotels from HotStats.

Profit per room at hotels in the Middle East & Africa fell to $82.38 in February, which completely cancelled out the positive performance in January and led to hotels in the region recording a 1.2 per cent decline in GOPPAR for year-to-date 2018, to $85.12.

The drop in profit at hotels in the Middle East & Africa was as a result of a decline in revenue as well as rising costs. In addition to a 6.8 per cent decrease in revenue in the rooms department, declines in non-rooms revenues, including Food and Beverage (down 3.6 per cent) and Conference & Banqueting (down 4.2 per cent), contributed to the 4.6 per cent decline in TrevPAR, to $210.95.

Whilst hotels in the Middle East & Africa recorded a 1.4-percentage point year-on-year increase in room occupancy in February, to 70.7 per cent, this was completely wiped out by an 8.7 per cent drop in achieved average room rate, to $171.49.

The challenges in achieved average room rate for hotels in the region are clear, with a fall in rate recorded across all segments in February, with the greatest margin of decline recorded in the Best Available Rate (down 13.4 per cent), Residential Conference (down 10.4 per cent), Corporate (down 11.2 per cent) and Group Leisure (down 7.8 per cent) segments.

Profit & Loss Key Performance Indicators – Middle East & Africa

In addition to the drop in TrevPAR, profit levels at hotels in the Middle East & Africa were hit by a further 1.1-percentage point increase in Payroll, to 27.6 per cent of total revenue.

As a result of the movement in revenue and costs, profit conversion at hotels in the region was recorded at 39.1 per cent, which, despite being 0.9 percentage points below the same period in 2017, was above the profit conversion for hotels in the Middle East & Africa in the 12 months to February 2018 at 37.4 per cent of total revenue.

The Jeddah hotel market was amongst the poorest performing in February, recording a 39.7 per cent decline in profit per room on the back of a drop in revenue and rising costs.

The 16.8 per cent decline in TrevPAR at hotels in Jeddah was as a result of falling revenue levels across all departments, including Food and Beverage (down 15.2 per cent), Conference and Banqueting (down 13.9 per cent) and Leisure (down 26.2 per cent).

The 17.2 per cent year-on-year decline in Rooms Revenue at hotels in the Saudi city was as a result of the ongoing decline in room occupancy levels, which were recorded at -4.9 percentage points in February, to 57.2 per cent, as well as a 10.1 per cent drop in achieved average room rate, to $214.54.

Room occupancy levels at hotels in Jeddah, in particular, are under pressure from additions to supply, which over the last 18 months have included the 304-bedroom Rocco Forte Assila Hotel, 224-bedroom Ritz Carlton, 252-bedroom Centro Shaheen by Rotana, 129-bedroom Citadines Al Salamah, 228-bedroom Movenpick City Star and 142-bedroom Radisson Blu Al Samalah.

As a result, room occupancy levels at hotels in Jeddah have plummeted by 12.1-percentage points over the last 36 months, to 66.8 per cent in the 12 months to February 2018, from 78.9 per cent in the 12 months to March 2015.

Profit & Loss Key Performance Indicators – Jeddah

In addition to the drop in revenues, rising costs, which included an 8.1-percentage point increase in Payroll to 40.8 per cent of total revenue, led to profit conversion at hotels in Jeddah falling to just 26 per cent of total revenue.

“The Jeddah hotel market is facing several critical issues. In addition to plummeting room occupancy levels, additions to supply have increased the competitiveness of the market and put pressure on lesser quality assets. As a result, this has forced several hotels out of the market, which has included the Sofitel being downgraded to a Pullman and then debadged completely.

There is also a flight to value from the domestic corporate and leisure market, which is impacting top line performance.

Furthermore, changes to labour legislation, which has included an increase in the expat levy, has had a significant impact on payroll costs and subsequently profit levels at hotels in Jeddah. These are all issues which are unlikely to improve anytime soon,” said Pablo Alonso, CEO of HotStats.

In contrast to the performance across the Middle East & Africa, hotels in Kuwait City recorded a 50.1 per cent increase in profit per room in February to $160.04, which marked a fourth consecutive month of year-on-year profit growth for hotels in the Kuwait capital.

The growth in GOPPAR at hotels in Kuwait City was led by a 25.2 per cent increase in TrevPAR, to $310.26, which was primarily due to a 29.7 per cent increase in RevPAR, to $169.79.

Profit & Loss Key Performance Indicators – Kuwait City

For hotels in Kuwait, the 29.7 per cent increase in RevPAR in February was driven by an 8.3-percentage point increase in room occupancy, to 67.3 per cent, as well as a 13.8 per cent increase in achieved average room rate, to $251.49.

The 38.9 per cent year-to-date increase in profit per room at hotels in Kuwait City represents a change in fortunes since the beginning of 2018 and is further to GOPPAR declines in 2016 (down 14.6 per cent) and 2017 (down 1.9 per cent). - TradeArabia News Service




Tags: hotel | profit | rate | MEA | decline | Middle | East |

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