HotStats UK Chain Hotels Market Review – January 2013
Profit decline in January was amongst the greatest suffered by hotels in London since the market recovered out of its recessionary slump more than three years ago, according to the latest HotStats survey of approximately 625 full-service hotels across the UK by TRI Hospitality Consulting.
Since August 2009, hotels in London have only suffered such dramatic declines in profit in December 2011 (-9.2%), due to the heavy snow fall and June 2012 (-9.3%), when the market was disrupted by the celebrations, and extended Bank Holiday, surrounding the Queen's Diamond Jubilee as well as pre-Olympic jitters.
The capital suffered declines across all headline performance measures, including the typically stalwart average room rate, which dropped by 1.6% to £123.65 from £125.64 in January 2012. As a result of the decline in rate coupled with a 1.7 percentage point drop in room occupancy, RevPAR (Revenue per Available Room) in London declined by 4.0% to £83.34, approximately 28 per cent below the rolling 12 month average for this measure of £115.56.
Whilst rates remained buoyant in the corporate segment, London hotels recorded an overall decline in the proportion of demand attributed to the corporate (-3.6%) and residential conference (-15.0%) sectors. In contrast, an increase was recorded in the proportion of demand attributed to the leisure sector (+9.4%), but this was undoubtedly as a result of yield management, evidenced by a 4.5% drop in the achieved leisure sector rate suggesting a greater level of discounting.
In addition to the decline in revenue, cost levels for hotels in London increased, most notably in overall payroll (+0.7 percentage points) as a proportion of total revenue, as well as maintenance (+10.5%) and utility costs (+5.4%) on a per room let basis.
"There are extremely mixed messages being received regarding the current status of the UK economy. On one hand, a recent Business Confidence Monitor by the ICEAW/Grant Thornton suggests that a 'significant rise in confidence' could lead to a return to economic growth in Q1 2013. In contrast, the European Commission has conceded that the Eurozone economy will shrink by 0.3% in 2013, which will undoubtedly impact the primary feeder markets for London's business and leisure tourism trade," said David Bailey, deputy managing director at TRI Hospitality Consulting.
Provincial hoteliers could be forgiven for thinking they are suffering from déjà vu as January 2013 was the third year in a row in which the hard work put in to achieving an increase in RevPAR was completely cancelled out by falling ancillary revenues and rising costs, according to the latest HotStats survey.
Hotels in the Provincial UK got off to a better start than those in London in 2013 with a 0.5 percentage point decline in room occupancy offset by a 2.0% increase in achieved average room rate to £65.82. As a result, hotels in the Provinces successfully achieved a 1.0% increase in RevPAR, which is in line with the 0.9% increase in RevPAR achieved in the Provincial market during the same period in 2012.
Although it was a slow start to the year, volume in the corporate (+1.7%) and conference (+2.5%) sectors increased as a proportion of total demand in the Provincial hotel market, with the corporate segment also recording a 0.5% increase in the achieved sector rate to £65.81.
However, whilst TrevPAR (Total Revenue per Available Room) levels benefited from increases in rooms revenue (+1.0%) and food revenue (+0.1%), Provincial hotels suffered a decline in beverage revenue (-2.7%) and room hire revenue (-1.5%) per available room, which led to total hotel revenue increasing by just 0.4% to £66.95.
Furthermore, costs remain a considerable pressure. This is no better illustrated than in the rooms department as a 2.0% increase in achieved average room rate, equivalent to an increase of £1.31, was impacted by a 6.6% (equivalent to £0.72) increase in rooms direct expenses (ie the cost associated with the sale and servicing of the bedrooms), which means that the net average room rate increased by only £0.59 or 1.1%.
Although payroll levels were down by 0.5 percentage points to 40.7% of total revenue, undistributed operating expenses as a proportion of total revenue were up by 0.5 percentage points to 34.2% of total revenue as a result of a 4.1% increase in utility costs per room let as well as a 4.3% increase in maintenance costs per room let.
"With Provincial hotel performance so closely dictated by UK economic output, the recent news that Moody's has downgraded the nation's credit rating due to sluggish growth over the next few years will not have been welcome news. With the poor start to 2013, on the back of a fifth consecutive year of Provincial profit decline, it is critical that the economy begins to recover in 2013 if this general trend is to be reversed," added Bailey.
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