UK Chain Hotels Market Review - July 2012

Despite the 6.3% year-on-year increase in achieved average room rate in July, to £159.26 from £149.80, the year-on-year movement in Revenue per Available Room (RevPAR) was negatively impacted due to a 10.2 percentage point decline in room occupancy.

Somewhat surprisingly, the decline in demand in London was not in the commercial sectors as initially predicted, but due to a drop in the proportion of demand attributed to the leisure and group tour sectors, which declined to a cumulative 29.8% of total demand from 39.5% of demand during the same period in 2011 as tourists stayed away.

Whilst this may in part be due to the particularly high visitor numbers in July 2011 as a result of the timing of Ramadan, travel companies clearly, and understandably, shifted their focus to selling high-yielding Olympic-related tours this summer, as the rate in this sector increased by 57.4% to £153.82, despite the drop in volume in the group segment.

"Host cities have proved time and time again that the biggest international events, such as the Olympics and football World Cup, rarely pay off for hoteliers during the period of the event and London is no exception.

However, it is important for London hoteliers to put July's performance into context rather than licking their wounds, as most other cities across the UK and Europe would consider a room occupancy close to 82 per cent and a 6.3% increase in room rate to be a hugely successful month," said Jonathan Langston, managing director at TRI.

Demand attracted to the biennial Farnborough Air Show was not enough to offset the inevitable decline in volume from the highs of 2011, which contributed to a 2.3% decline in Total Revenue per Available Room (TRevPAR) to £171.16 as hoteliers in the capital also suffered a 5.1% year-on-year drop in food and beverage revenue to £24.58 per available room.

As a result of the movement in revenue and costs, Gross Operating Profit per Available Room (GOPPAR) for the month dropped by 3.1% to £91.79, which many will consider to be a small price to pay for what will undoubtedly be a reinvigoration of London's tourism industry.

Mixed performance at Provincial Olympic host cities during July

The reach of the Olympic Games went well beyond the boundaries of Greater London, with the cycling through Surrey, the rowing at Dorney Lake and the tennis at Wimbledon, but there were mixed results in July for other major host cities throughout the UK, according to the latest HotStats survey.

The other host cities of Cardiff, Glasgow, Newcastle, Manchester and Coventry were used for games in the men's and women's football tournament with the first event of the entire 2012 Olympiad hosted at Cardiff's Millennium Stadium.

Major events at the Millennium Stadium are what Cardiff hoteliers do best and the city revelled in its role in the 2012 Olympics, providing hoteliers in the Welsh capital with a much needed boost in performance in both room occupancy (+6.6 percentage points) and average room rate (+6.5%), which contributed to a 13.8% increase in TRevPAR to £107.55. As a result of astute cost management, the city was able to achieve a year-on-year increase in profit per room of more than 45% to £34.54.

Positive profit performance was also achieved in Glasgow (+4.4%) and Coventry (+4.1%) with the greatest margin of growth achieved in Newcastle (+16.7%). And whilst the statistics suggest that increases in headline performance levels were not entirely due to Olympic demand, hosting the Olympic teams and their entourages and families, as well as the media, sponsors and officials, will undoubtedly have boosted business.

Meanwhile, the games at Old Trafford had little impact on overall performance levels in Manchester, with a slight increase in RevPAR recorded as the 3.6 percentage point decline in room occupancy, to 76.2%, was more than offset by the 5.3% increase in average room rate for the month, to £78.62. However, as a result of the movement in revenue and costs, Manchester hoteliers recorded an overall decline in profit per room of 3.2% in July to £32.86 per available room.

Aside from the Olympics, 109,000 visitors to the 2012 Farnborough Air Show from 9 to 15 July enabled hoteliers in nearby Basingstoke to achieve profit growth of more than 41% as many visitors to the biennial event gave London a wide berth. The growth in profit was driven by a 21.4% increase in RevPAR.

Overall, whilst the Provincial hotel market ended yet another month with a decline in profit (-0.5%), positive increases were achieved in RevPAR (+2.2%) and TRevPAR (+0.5%), as well as a much sought after increase in average room rate (+3.3%) to £72.23.