Falling profits hit MENA hotels; 2 Saudi cities see mixed numbers

Hilton has set plans to triple its footprint across the Middle East to include more than 120 hotels in the next few years. 
Riyadh, Saudi Arabia. Image: apriltan18 / Pixabay

Hotels in the Middle East and North Africa recorded a 34.8-percent year-over-year decrease in profit per room in September as revenue levels slid and costs escalated, according to the latest HotStats data tracking full-service hotels.

September was yet another month of year-over-year profit decline for hotels in the region as the growth recorded in August’s positive month of performance was wiped away. At $37.82 for the month, GOPPAR was only just above the annual low of $35.80 recorded in June, according to the firm. 

The drop in profit was led by declines across all revenue centers, including rooms (down 15.4 percent), food and beverage (down 10.7 percent), conference and banqueting (down 6.3 percent) and leisure (down 14.6 percent), on a per-available-room basis. This mix contributed to a 13-percent decrease in TRevPAR for the month to $159.66. 

FREE DAILY NEWSLETTER

Like this story? Subscribe to IHIF!

The hospitality industry turns to IHIF International Hotel Investment News as the must-read source for investment and development coverage worldwide. Sign up today to get inside the deal with the latest transactions, openings, financing, and more delivered to your inbox and read on the go.

Occupancy and Rates

RevPAR declines were a result of a drop in both room occupancy, which fell by 1.9-percentage points to 64.4 percent, coupled with a 12.8-percent decline in achieved average room rate, which fell to $137.74. This was the lowest average room rate recorded in the region in 2018. 

The drop in revenue was exacerbated by rising costs, which included a 4.4-percentage-point increase in payroll to 34.8 percent of total revenue, as well as a 4.1-percentage-point increase in overheads, which grew to 33.8 percent of total revenue. 

As a result of the swings in revenue and cost, profit conversion at hotels in the Middle East and North Africa was recorded at 23.7 percent of total revenue in September, well below the margin for year-to-date 2018 at 34.7 percent, the data indicated.  

“The month of September is illustrative of the challenges hoteliers in the MENA market have faced in recent years, with profit per room recorded at $37.82 this month, which is half of the GOPPAR recorded in the same period in 2015,” said Michael Grove, director of intelligence and customer solutions, EMEA, at HotStats. “While the year-[over]-year decline this month may be, in part, due to the high recorded this time last year as the Eid al-Adha celebrations crept into September, the longer-term trend of decline in profit will be more of a worry for hotel owners and operators in the region.”

Related Story: September still hot for Europe's hotels

Riyadh

In contrast to the decline across all KPIs [key performance indicators] at hotels in the region, properties in Riyadh recorded an 18.5-percent year-over-year increase in GOPPAR to $58.07, which was driven by demand associated with a number of major conferences in the Saudi capital, according to HotStats. 

The growth in profit at hotels in Riyadh was led by a 10.7-percent increase in RevPAR to $101.09, which was due to an 11.1-percentage-point increase in room occupancy to 59.6 percent, which offset the 9.9-percent decline in achieved average room rate to $169.71. 

The growth in rooms revenue also successfully compensated for the decline across all non-rooms departments, including food and beverage (down 3.7 percent) and conference and banqueting (down 17.7 percent), on a per-available-room basis.

As a result of the movement across all revenue centers, TRevPAR at Riyadh hotels increased by 5.1 percent year-over-year to $162.45. And while this was almost $60 above TRevPAR recorded in the Saudi capital in August, it remained 11.8 percent below the year-to-date figure at $184.11, the data indicated. 

The growth in TRevPAR at hotels in Riyadh was further buoyed by a year-over-year drop in payroll, which fell by 0.7 percentage points, to 33.5 percent of total revenue. 

Primarily due to the growth in room occupancy in September, profit margin at hotels in Riyadh was recorded at a healthy 35.7 percent of total revenue, which is just behind the 37.6 percent recorded at hotels in the city in the nine months to September.

However, growth in profit at hotels in Riyadh was against a worrying backdrop of declining room rates, which included a decrease in rate in the corporate (down 12.4 percent), individual leisure (down 52.8 percent) and group leisure (down 42.5 percent) segments, according to HotStats. 

Medina

In line with the decline in the wider region, the timing of Eid al-Adha this year meant that year-over-year profit plummeted at hotels in Medina in September, following a strong month of GOPPAR growth in August.   

In addition to recording a 40-percent year-over-year decline in September to $107.35, RevPAR at hotels in Medina this month was almost $128 below August, when the city benefited from celebrations associated with the festival.

In addition to the drop in rooms revenue, hotels in Medina recorded a decline across all other revenue centers in September, which contributed to the 35.7-percent year-over-year decrease in TRevPAR to $183.72.

As a result of the movement in revenue and cost, profit per room at hotels in Medina fell by 54 percent year-over-year to $80.74. While this was 15.3 percent below GOPPAR recorded at the city's hotels in in the nine months to September, it also was $190.90 below the profit per room in August.