HotStats MENA Chain Hotels Market Review – August 2014

Hotels in Cairo encouraged by strong performance results in July benefitted from a surge in hotel demand as occupancy levels increased by more than 41 percentage points to 62.0% in August, according to the latest HotStats survey of full service four and five star hotels by TRI Consulting.

The upswing witnessed in August has enabled hoteliers to adopt more progressive yielding strategies as average room rates (ARR) increased by 5.5% in August to US$119.35 compared to the same period last year. Consequently, revenue per available room (RevPAR) and total revenue per available room (TRevPAR) more than tripled to US$73.95 and US$144.12 respectively, which was also aided by an increase in F&B revenues of 140.9%. As a result payroll costs as a percentage of total revenues declined to 13.8% compared to 46.9% in the same period last year. Such factors have greatly augmented the profitability indicators of the market, with gross operating profit per available room (GOPPAR) reaching its highest level in the previous two years to US$82.76.

''The relative stability experienced in Egypt in recent months has been reflected in the performance of the hotel markets, particularly for hotels in Cairo, as they welcomed the largest number of guests in August than in any other period since the protests intensified. The rise in occupancy levels invokes a positive outlook on a market that has recorded persistent low levels of hotel demand in the previous two years. The stability has also imparted confidence in various other sectors of the Egyptian economy, as business activity in the country expanded profoundly in August, reaching an eight-month high. Furthermore, efforts by the Ministry of Tourism to launch a promotional campaign in July to attract tourists back to the country has benefitted hotels and is expected to improve tourism demand in the following months'' commented Peter Goddard, Managing Director of TRI Consulting.

Increased summer demand drives profit growth in Jeddah

The Jeddah hotel market remains one of the strongest markets in the region, recording the highest GOPPAR levels amongst the five hotel markets surveyed. The market experienced a surge in demand as occupancy grew by 6.8 percentage points to 77.0% while ARR increased by 8.4% to US$296.64, facilitating an 18.9% growth in RevPAR to US$228.42. TRevPAR only grew by 7.7% due to a decline in F&B and Conferencing revenues by 9.6% and 8.1% respectively. However, stable operating expenses helped grow GOPPAR which rose by 14.8% to US$163.19.

"The popularity of Jeddah as a premier leisure destination in the Kingdom continues to drive strong levels of domestic leisure travellers to the city, especially during the Eid Al Fitr holiday and summer school holidays. The conclusion of Ramadan also led to the resumption of corporate activity which drove additional demand into the Red Sea city coupled with a number of local and regional conferences and events" commented Goddard.

Kuwait hotels suffer as demand dries up during the summer months

Despite commanding relatively higher average room rates in the region, hotels in Kuwait experienced weakening market conditions in August, as occupancy declined by 1.5 percentage points to 35.6% while ARR contracted by 3.8% to US$261.54. As a result, RevPAR declined by 7.6% to US$93.03. A contraction in F&B revenues and more significantly Conferencing and Banqueting revenues – which have been on a persistent decline since May –, further compounded the impact on total revenues as TRevPAR declined by 10.0% to US$202.13. Consequently, payroll costs increased by 8.5 percentage points to 35.0% lowering GOPPAR by 31.6% to US$59.26 for the same period last year.

"The absence of any distinct leisure or retail attractions in Kuwait, impacted hotels in August as they struggled to capture their fair share of leisure segments from domestic and regional markets during the summer holiday period. The lack of diversification of Kuwait's leisure attractions has a significant impact on the market during the summer months as corporate activity slows and local residents travel abroad to other destinations in the region and globally" commented Goddard.

Strong demand from regional travellers boost Doha hotel performance in August

Despite witnessing a decline in ARR of 3.0% to US$215.61 for the month of August compared to the same period last year, hotels in Doha were able to record a 24.6% growth in RevPAR to US$129.15, driven by a 13.3 percentage point rise in occupancy to 59.9%. Overall profitability margins also recorded significant improvement as GOPPAR levels increased by 64.0% to US$ 99.77, benefitting from increased F&B revenues and a subsequent decline in payroll costs by 4.9 percentage points to 26.2%.

Peter Goddard, Managing Director of TRI Consulting mentioned, "The increase in occupancy levels for the market was influenced by the influx of leisure travellers to the city, who took advantage of the remaining summer and Eid holidays that extended into August for some of the GCC nations. The trend fares well for the realisation of the National Tourism Strategy 2030 which aims to diversify its demand base to include a greater proportion of regional travellers through the development of its cultural assets and family based leisure attractions".

Average room rates stabilise as demand continues to rise
The Abu Dhabi hotel market continues to elevate its performance levels as occupancy levels rose by 7.5 percentage points to 71.3% driving RevPAR growth by 11.7% to US$81.74, while average room rates remained stable compared to the same period last year. Strong growth in F&B and conferencing revenues also helped raise the revenue potential of the market as TRevPAR for the period increased by 10.7% to US$179.01. The decline in a number of operating expenses enabled hotels to record a strong rise in profitability as GOPPAR more than doubled to US$24.05 and marked a return to positive levels following the previous month.

"The culmination of Ramadan and Eid Holidays falling in the beginning of August, allowed hotels in Abu Dhabi to attract a strong number of regional travellers to the city's entertainment and shopping attractions. Furthermore, a proactive approach by the TCA to promote the destination in emerging markets, particularly in China, has resulted in a 189% increase in room nights from Chinese visitors for the first six months of 2014 compared to the same period in 2013" commented Goddard.