HotStats UK Chain Hotels Market Review – June 2010

Room rates in London have surged through their previous peak of June 2008 as profitability at hotels in the UK capital soars, according to the latest HotStats survey from TRI Hospitality Consulting.

A year-on-year increase in Revenue per Available Room (RevPAR) of 15.8% in the month of June has led to a 14.9% increase in Gross Operating Profit per Available Room (GOPPAR) at London hotels. The strong RevPAR growth in London was led by an exceptional increase in achieved average room rate of 11.2%, to £131.23.

The overall rate increase was primarily due to a 22% uplift in achieved rates in the nondiscounted rack rate market segment and the leisure sector, which is unsurprising considering that June is traditionally the strongest performing month in the capital, driven by a good mix of commercial and leisure demand and boosted by major events such as Wimbledon, which attracts over half a million visitors to London. As a result, London hoteliers recorded the highest room occupancy levels of the year in June, at 87.5%, an increase of 3.4 percentage points against 2009.

For London hoteliers, the increase in volume resulted in a number of efficiencies being achieved, namely a 1.4 percentage point decrease in payroll as a percentage of total revenue, to 22.1%. Contributing to the 14.9% increase in profitability, this resulted in a GOPPAR of £80.07.

Whilst the positive movement in headline performance levels in June put the capital ahead of those levels achieved prior to the economic downturn, the disruption caused by the snow in January and the ash cloud in April has left London hoteliers slightly behind over the first six months of the year.

That said, in the period from January to June 2010, year-on-year GOPPAR in London increased by 12%. This has primarily been driven by a 6.1% increase in average room rates and the excellent cost management by London hoteliers.

“Hotel managers in London have put on a stunning performance in the first six months of the year. Were it not for the major disruptions caused by mother nature in January and April, the capital’s hotels may have ended the first six months ahead of the headline performance levels achieved prior to the economic downturn in 2008”, said Jonathan Langston, managing director, TRI Hospitality Consulting.

Forward momentum halted in the Provinces

A growth in RevPAR of 1.3% in the month of June was not enough to prevent a return to yearon- year profitability decline for Provincial hoteliers, according to the latest HotStats survey from TRI Hospitality Consulting.

Following the respite in May, a one per cent increase in payroll as a percentage of total revenue as well as an increase in costs across the market resulted in a decline in GOPPAR of 3.5% at provincial hotels to £34.19, despite the increase in RevPAR.

Hotels in the Provinces have struggled to gain momentum in 2010 and the first half of the year ended with an overall decline in GOPPAR of 2.9%, adding further gloom to the 19.7% decline during the same period in 2009. The positive rooms revenue movement for provincial hoteliers in June was not enough to drive a year-on-year increase in the first six months of 2010 and RevPAR remained flat at £45.49.

Although rate remains a challenge throughout the UK, room occupancy in Leeds (+1.8 percentage points), Liverpool (+0.1 percentage points) and Birmingham (+5.0 percentage points) showed positive movement.

“The first six months of 2010 were always going to be a challenge for provincial hoteliers, but the loss of business in January and April was particularly unwelcome. We hope for the hoteliers’ sake that the second half of the year will be a more stable operating environment,” added Langston.

BA industrial action hits BAA airports yet again

Whilst the month of June should have signified the beginning of the summer season and kick started BAA's recovery following a disappointing first half of 2010, the dismal year continued. Industrial action by BA cabin crew caused an estimated 1.7% drop in passenger numbers on 2009.

Heathrow airport was one of only two airports to experience an increase in passenger numbers, by 0.1%, with the group's Scottish airports at Edinburgh, Glasgow and Aberdeen estimated to have suffered a decline of 2%, 7% and 4% respectively compared to June 2009.

Undeterred by another month of disruption, average room occupancy in the Heathrow hotel market increased by 7.5 percentage points in June to an annual high of 87.1%. Average rates in the market also benefited from an increase (of 2.2%) resulting in a RevPAR growth of 11.9% for the month of June, according to the latest HotStats survey.

Signifciant disruption to the operation of BAA’s UK airports in the first six months of 2010 has resulted in a year-on-year decline in passenger numbers of 5.5%. In contrast, RevPAR at Heathrow hotels has increased by 9.1% in the first six months of the year, to £56.01.