HotStats: Global industry struggles in June

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Gross operating profit per available room in the U.S. during the month of June was down 118 percent year over year and a gain in the metric from April to May was short-lived. Getty / E+ / pick-uppath (Getty-Eplus-pick-uppath)

The first half of the year is over, and as the industry prepares for an H2 hampered by a deadly pandemic, different markets worldwide are struggling to balance safety with profitability as “anemic” occupancy continues to choke off revenue, according to the latest report from HotStats. 

June's numbers revealed ongoing challenges for the industry, with some regions reporting marked improvements and others still hampered by the coronavirus.

U.S. Struggles

In the U.S., which continues to lead in global COVID-19 cases and deaths, RevPAR in June was down 87.3 percent year over year, but at least that metric was 67 percent higher than it was in May.

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Unfortunately, the same could not be said for profit. Gross operating profit per available room in the month was down 118 percent year over year and a gain in the metric from April to May was short-lived, declining 14 percent in June over the previous month, according to the report.

Conversely, total revenue per available room improved in June over May, up 67 percent, but still down 87.9 percent year over year.

The month-over-month decline in profit is a function of an uptick in expenses. Total overhead costs were down year over year, like most costs, but bounced up in June over May, climbing 53 percent. Concurrently, labor costs bounded upward month over month, up 39 percent. While the expense line jumped, it’s not an altogether ominous sign for the hotel industry, illustrating that some jobs are either being filled or brought back as more hotels reopen.

Second-quarter GOPPAR was down 119 percent compared to the same period in 2019. Year-to-date GOPPAR is down 85 percent over the same period in 2019.

Europe’s Minimal Jumps

In Europe, which has had relative success containing the spread of COVID-19, travel demand remains spotty, resulting in double-digit declines for most key performance metrics in June.

With the summer season now in full swing, many European countries are dependent on the traveler spend that arrives with it. However, the European Union bloc’s ban of certain countries, including the U.S., makes that reliance difficult.

RevPAR in the region was down 94.6 percent year over year, with average rates below €100 coupled with sub-10 percent occupancy rates.

Choked off ancillary revenue streams resulted in a 92 percent year-over-year decline in total RevPAR in June; on an optimistic note, it was up 57 percent on May, the potential result of many countries thawing out their economies. Contrary to the U.S., Europe saw month-over-month gains in profit, with GOPPAR still in negative territory, but up 20 percent over May. year over year GOPPAR is down 115 percent year over year.

Total overhead costs were up 8 percent month over month and labor costs saw a minimal jump.

GOPPAR in the second quarter was down 122 percent over the same period in 2019.   

Hope for Asia-Pacific

Out of all the regions HotStats tracks, Asia Pacific the only one to have turned in positive GOPPAR ($3.58) in June. This marks the first time the metric has turned positive since February, when the pandemic first began spreading.

Helping fuel the growth was an occupancy rate that climbed to 32.2 percent for the month, 2.2 percentage points higher than in February. The 5.6-percentage-point jump in June occupancy over May still did not lead to any pricing power, with hoteliers content to try and fan RevPAR by volume rather than rate.  

Still, the report suggests this growth could be ephemeral. Some countries in Asia-Pacific are experiencing sharp climbs in new cases of COVID-19, including India, which became the third country to record more than 1 million cumulative cases, while Indonesia overtook China as the country with the highest number of confirmed cases in East Asia.

Other countries, including Australia and Japan, appear to be experiencing a second wave of infections.

June, however, showed hope, with many key metrics up on a monthly basis, including RevPAR (up 22.7 percent) and TRevPAR (up 31.4 percent). In another show of confidence, total revenue from food-and-beverage was up 42.2 percent, an indication that guests aren’t just making their way back to hotels for sleep, but to eat.

Second-quarter GOPPAR was down 108.4 percent over the same period last year, according to the report.

Middle East Fumbles

The Middle East did not have the same luck as Asia-Pacific, trending closer to the U.S. and Europe.

While occupancy was higher than both the U.S. and Europe in June, the region dropped 2 percentage points back from May. However, average rate did see nominal growth over the same period, resulting in a small 2.3 percent uptick in RevPAR.

Like RevPAR, TRevPAR saw a slight increase in June over May, up 5.3 percent, but off 55 percent from March. The small rise in total revenue was bolstered by an uptick in total F&B revenue, which climbed to a double-digit dollar amount, the first time since March.

On a gloomier note for hotel owners, profitability did not follow suit. Like the U.S., GOPPAR was down on a month-over-month basis in June, declining 43 percent over May. HotStats called this “a striking figure” since GOPPAR had been trending in the right direction since it first plummeted into negative territory in April at -$15.56. May saw GOPPAR rise, but June’s -$18.27 figure was the lowest ever recorded in a month in the region by HotStats. It was also down 140.6 percent year over year.

An increase in expenses helped erase revenue gains. Total overheads on a per-available-room basis were up 16.7 percent month over month, as were labor costs, up 8.7 percent.

Like other regions, the Middle East is seeing surges of its own, prompting some countries to turn again to lockdowns. A full lockdown will be imposed across Iraq during the Eid Al-Adha holiday, which runs from July 31 to August 3. The holy festival is the second of two Islamic holidays celebrated each year. The first, Eid Al-Fitr, which runs for two days in May, was blamed for a surge in cases after restrictions were relaxed.

GOPPAR in the second quarter was down 123.2 percent over the same period in 2019.  

As the report notes, perhaps no industry is impacted or shaped more by external forces than the hotel industry, which lives and dies on the free movement of people. When that movement is impeded, demand sharply recedes, leaving a black stain on hotel revenue and profit.

Until the traveling public is fully confident again, which may not come until a vaccine is produced (which has hurdles of its own) or, absent that, a precipitous fall in cases, the hotel industry could be stuck in a rut and will have to rely on savvy to safeguard the bottom line, according to HotStats.