HotStats UK Chain Hotels Market Review – March 2013

Whilst demand levels have remained relatively robust, London hotels are attracting a higher proportion of lower yielding leisure and group tour demand than relatively higher-value commercial demand. Furthermore, average room rate performance declined in all market sectors with the exception of corporate-related demand, which remained stagnant.

First quarter GOPPAR performance reduced in all sectors of the London full-service hotel market (ie three, four and five-star hotels). The greatest GOPPAR percentage decline was experienced in the four-star sector (-9%) as total departmental profit per available room dropped by 5.4% in the first three months of 2013. The capital's five-star and three-star sectors experienced GOPPAR declines of 8.7% and 7.8%, respectively, over the same period.

March performance was not particularly strong as average room rate performance declined by 4.3%, TRevPAR by 3.2% and GOPPAR (Gross Operating Profit per Available Room) by 6.6%. Despite London hoteliers being able to maintain a stable cost base the decline in revenue performance, primarily due to a decrease in rate performance in all sectors impacted revenue and profit performance.

"The first quarter is typically the most challenging operating period for London hotels; however from a broader perspective the fact that demand levels remain robust despite London experiencing an increase in supply of over 11,000 bedrooms across all sectors since 2010 is more encouraging news," said Jonathan Langston, managing director at TRI Hospitality Consulting.

Revenue Growth wiped out by rising costs in the Provinces as hotels feel the chill

The latest HotStats survey showed a decline in gross operating profit performance in the Provinces despite an increase in revenue for the month of March.

For March, both RevPAR (+1.2%) and TRevPAR (+0.9%) increased, although GOPPAR performance declined by 5.3% in the Provinces. The rise in RevPAR performance was due to a 1.1 percentage point increase in occupancy, offsetting the slight decline in average room rate performance (-0.4%).

Closer examination of operating cost performance indicated that for the month of March, Undistributed Operating Expenses (UOE) increased from 25.7% to 26.8% of total revenue. Administrative and General expenses increased by 5.4% on a per available room basis whilst utility costs increased by 12.5%. The increase in utility costs was due to the freezing weather experienced throughout the UK, which was the country's second coldest ever March on record according to the Met Office.

The adverse weather conditions impacted first quarter GOPPAR performance which, but for higher utility costs, would have been in positive territory. Whilst TrevPAR performance in the first three months of 2013 increased (+1.2%), GOPPAR performance declined (-4%).

Closer examination of UK regional/national GOPPAR performance for the first quarter of 2013 shows a wide variety performance with positive gains achieved in the North West (+3.7%), East Midlands (+3.2%) and Scottish (+6.8%) full-service hotel markets. In contrast, the North East (-29.4%) and West Midlands (-12.5%) experienced significant declines.

"From a top-line revenue perspective, it is promising that demand levels and revenue performance continues to achieve incremental increases in the Provinces; however, whenever there appears to be some positive news hoteliers have been faced with a variety of operating challenges. In March it was the adverse weather; prior to that an increase in departmental operating expenses and travel agency commissions as well as a number of other factors. Perhaps the better-than-expected GDP results in Q1 will provide a more positive outlook for Provincial hoteliers in the remainder of the year," said Langston.