HotStats UK Chain Hotels Market Review – December 2012

Although 2012 will go down in history as a remarkable year of events, which will undoubtedly go unmatched within a generation, London's hotel performance remained unpredictable throughout, as uncertainty remained about the impact of these events on headline performance.

The year started well enough with a strong performance across all measures in the first five months, but doubt started to creep in as the events got underway.

Overall, hoteliers in London recorded three months of year-on-year profit decline in 2012, in June (-9.3%), due to the celebrations associated with the Diamond Jubilee, during July (-3.1%) due to pre-Olympic jitters and November (-5.6%) as the post-Olympic hangover began to set in.

But it was the outstanding increase in headline performance levels during the Olympics in August, which has cancelled out these declines and enabled a 4.9% increase in profit per room in 2012 to £75.27 from £71.73 during the same period in 2011.

"Despite the last few years being one of the toughest trading periods in recent history, hotels in London have recorded yet another year of profit growth on the back of increases in 2010 (+13.9%) and 2011 (+4.7%). For London hoteliers it has been a breathless charge through 2012 and it now seems like a lifetime ago that the industry was discussing how bad the Olympic Games may be for business.

How different our perspective is now, as, taking nothing away from the ability of London's hotel managers, the Olympics are the saviour of the year and we will take only positive memories away from 2012," said Jonathan Langston, managing director of TRI Hospitality Consulting.

In December, London hotels returned to profit growth (+1.6%), but it was not as convincing as during other months. As the city suffered a 0.8% drop in RevPAR (Revenue per Available Room) due to a 2.2% decline in achieved average room rate, growth in TrevPAR (Total Revenue per Available Room) was only possible due to increases in ancillary revenues, including food and beverage per available room (+5.4%).

Provincial hotels slump to fifth consecutive year of profit decline

The overall performance of hotels in the Provinces more accurately reflects the challenges which are being experienced by hoteliers throughout this economic recession, which have led to yet another year of rising revenue being outpaced by increasing costs, according to the latest HotStats survey.

The RevPAR growth picture in 2012 is much the same as in 2011, with Provincial hoteliers achieving a 1.4% increase this year against the 1.5% increase last year. Indeed, this is the third year in a row that Provincial hoteliers have managed to increase RevPAR levels with growth of 1.5% also achieved in 2010.

Furthermore, at an increase of 0.9% in 2012, the TrevPAR growth at hotels in the Provinces was above the increase in 2011 (+0.2%) and 2010 (-0.1%).

However, profit performance was impacted by an increase in payroll levels which were up by 0.2 percentage points in 2012 to 32.4% of total revenue. This is unsurprising as the adult rate minimum wage increased once again, by 1.8%, exceeding the growth in Provincial TrevPAR.

It is unsurprising then that hotels in the Provinces suffered a fifth consecutive year of profit decline. Whilst the decline was less in 2012 (-1.9%) than in 2011 (-3.2%), the trend of consistent cost increases means that growth in profit remains extremely challenging.

This is no better exemplified than in the cost of travel agent's commissions, which were once again a focus of concern for Provincial hoteliers in 2012 as this measure increased by 6.8% on a per room let basis, to £5.05, equivalent to 7.3% of rooms revenue.

"Whilst our RevPAR-focussed competitors will be telling you that hoteliers in the Provinces have enjoyed yet another year of growth, the truth is that the overall Provincial profit picture remains negative.

After five years of decline, the keep calm and carry on mentality is wearing a bit thin and it is clear that the impact of the fundamental shift in the operating structure of Provincial hotels will continue be played out as the market anticipates further casualties in 2013," said Langston.

As always, it is important to highlight the winners and losers and in 2012 hotels in Liverpool bounced back with a 3.7% increase in profit per room. This was despite only achieving a 0.9% increase in RevPAR, suggesting that the recent tough trading conditions in the city have engendered a parsimonious mentality.

Hotels in Basingstoke were also on the winner's rostrum with a 6.4% increase in profit per room, which was led by the outstanding performance of the market during the Farnborough Air Show in July as demand was displaced out of London fuelling a 41.3% year-on-year increase in profit.

In contrast, those cities which witnessed a decline in profit per room include Newcastle (-10.4%), Nottingham (-12.7%), Bath (-4.7%), Manchester (-1.9%) and Leeds (-3.8%).