Industry Update
Editorial Article24 September 2010

HotStats UK Chain Hotels Market Review - August 2010

Payroll management impedes profitability growth in the Provinces

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TRI Hospitality Consulting

Higher staff costs hit profits at provincial hotels in the UK during August, according to the latest HotStats survey from TRI Hospitality Consulting.


Revenue per available room rose year-on-year for the month by 1.5% but payroll costs as a percentage of revenue crept up by 0.5 percentage points and this helped cause Gross Operating Profit Per Available Room (GOPPAR) to drop by 1.2%.

As a result, UK Provincial hotel performance was left languishing some way behind 2008 levels, following the 13.4% profitability decline during the same period in 2009.

Throughout the month of August the performance of Provincial UK hotel markets was once again mixed, as leisure-driven locations benefited from Britons holidaying at home but tools were downed in areas of prime commercial activity.

In Bath, a popular destination for both domestic and international tourism, hoteliers achieved a 10.3% year-on-year increase in TrevPAR fuelling a 6% increase in GOPPAR (to £48.92), as the leisure segment accounted for more than 55% of staying visitors at hotels polled in the city during August.

In contrast, with only 23.8% of the market mix attributed to the leisure sector, Manchester hotels suffered a 9.9% decline in TrevPAR in August. This decline was further compounded by a 2.7 percentage point increase in payroll as a percentage of total revenue (to 45.1%), resulting in a GOPPAR decline of 33.2%. During August, a profit conversion of just 7.4% of total revenue at Manchester hotels resulted in a GOPPAR of only £3.30 per available room.

“The month of August typically polarises those markets which are heavily reliant on the commercial sector, including Manchester and Newcastle, and those which benefit from a greater proportion of leisure demand such as Bath and Brighton. Given the challenges of modifying cost levels for a single month, the variance in demand levels during the leisure-led summer months can have a marked impact on a hotel’s profitability,” said Jonathan Langston, managing director, TRI Hospitality Consulting.

Profitability growth in London cools as summer ends

Following the staggering 30.5% increase in profitability in London in July, which was driven by the Farnborough Air Show, at 9.5%, the increase in Gross Operating Profit per Available Room this month was more measured, according to the latest HotStats survey.

London hoteliers continued to benefit from growth in headline performance levels during August, which resulted in a 4% increase in TrevPAR. In addition, the strength of management in the London hotel market once again came to the fore as payroll levels decreased by 0.2 percentage points to 28.6 per cent of total revenue, helping to boost profitability levels.

That said, the growth in GOPPAR during August was not enough to return London hoteliers to 2008 performance levels as the market experienced a 12.4% decline in profitability during the same period in 2009.

“Despite the strong performance, August was the first month since the ash cloud-related declines back in April that the London hotel market has not regained the losses experienced in 2009. As we progress through the year there will be a hardening of comparables from 2009 and the challenge for London hoteliers will be to surpass the strong levels of growth achieved during London’s recovery in last 2009,” added Langston.

Heathrow airport continued to perform strongly this month, recording its busiest ever August and second busiest month on record, with an increase in passenger numbers of 2.5% to 6.5 million people.

However, Heathrow was the only airport in the BAA portfolio to experience a growth in passenger numbers during August as other airports in the group suffered from their overdependence on the UK outbound leisure market, which continues to be affected by the continuing economic uncertainty that has led to casualties among smaller UK tour operators.

At Stansted, reductions in airline seat capacity contributed to a 6.1% drop in passenger numbers, a result which was echoed at Glasgow airport (-9.4%) as the collapse of the Scotland-based Globespan airline late last year is being felt more than ever during the typically busy charter flight season. Declines in passenger numbers were also recorded in Edinburgh (-0.2%), Aberdeen (-4%) and Southampton (-1%).

According to BAA, the growth at Heathrow was as a result of the airport’s greater exposure to the business travel sector, which is also reflected in the performance of local hotels. Despite a 0.3% decrease in achieved average room rate, RevPAR in the market grew by 10% due to a 7.7 percentage point increase in room occupancy, to 82.8%. The movement in headline performance levels contributed to a 31.5% increase in GOPPAR, to £25.18 per available room, according to the latest HotStats survey.

Jonathan Langston
Phone: +44 (0)20 7892 2201
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