August's heat cools down profits for Southern Europe's hotels

The Westin Excelsior, Rome, Italy Image: Marriott International (Europe’s hotel industry achieved growth across the three key performance metrics during April 2018.)

Summer was good to Europe's hotels—or many of them, anyway. According to the latest data from HotStats tracking full-service hotels, August was the third consecutive month of significant profit growth for hotels in Europe, with GOPPAR levels jumping 11.8 percent. (June was up 23.4 percent, while July was up 16.9 percent.) HotStats credits the improvement, in part, to increases across all revenue departments as well as cost savings.

As a result, GOPPAR now has increased by 11.7 percent in the eight months to August, paving the way for a bumper year of profit growth for hotels in Europe and continuing a significant upward trajectory since 2016 when profit growth was down 1.6 percent, followed by an 8.9-percent jump in 2017.

August's growth was led by an 8.3-percent increase in RevPAR as hotels in Europe recorded a 1.7-percentage-point increase in room occupancy to 78 percent, coupled with a 5.8-percent increase in achieved average room rate, which hit €169.86.

In addition to the increase in rooms revenue, Europe's hotels also recorded year-over-year growth in non-rooms departments, including food and beverage (up 5.7 percent) and conference and banqueting (up 12.1 percent) on a per-available-room basis, which contributed to the 7.3-percent lift in TRevPAR in August to €184.48.

In addition to the positive movement in revenue, cost savings, which included a 0.7-percentage-point decrease in payroll to 30.9 percent of total revenue, as well as a 0.3-percentage-point drop in overheads, contributed to the punchy year-over-year growth in profit.

As a result of the movement in revenue and costs, profit conversion at hotels in Europe reached 38.3 percent of total revenue in August, which is above the margin for year-to-date 2018 at 35.9 percent, illustrating the positive performance recorded at hotels in the region this month.

“Whilst it was a very positive month of performance for hotels in Europe this month, our data suggests that the overall growth was primarily driven by locations in the north and east of the region,” said Michael Grove, HotStats' director of hotel intelligence and customer solutions, EMEA, in a statement. “This was, in part, due to the southwest being hit by sweltering temperatures, which deterred visitors to the typically bustling capital cities.” 

Barcelona's Blues

Those warm temperatures contributed to hotels in Barcelona recording a 26.4-percent year-over-year decline in profit per room in August, but this may also be due to the wider reported decline in the number of visitors to Spain in 2018.

It was a top-down decline in performance for hotels in the Catalan capital this month, as RevPAR fell 19.5 percent as a result of a 4.4-percentage-point drop in room occupancy to 82.4 percent, as well as a 15.1-percent decline in achieved average room rate, which fell to €241.62.

Significant declines also were recorded in non-rooms revenues in August, which included a 12.5-percent drop in food and beverage revenue and a 33.7-percent year-over-year decline in conference and banqueting revenue.

Furthermore, the contribution from non-rooms revenue at hotels in Barcelona in August was well below year-to-date averages, at just 28.9 percent of total revenue against 35.9 percent for the eight months to August.

This was further illustrated by the significantly lower contribution from food and beverage revenue on a per-available-room basis at €67.00 in August, more than €20 below the year-to-date average at €87.99.

As a result of the lower contribution from non-rooms revenues, as well as plummeting rooms revenue, TRevPAR at hotels in Barcelona fell by 16.7 percent year-on-year to €279.67.

Hotels in Barcelona were further hit by rising costs in August, which were led by a 4.8-percentage-point increase in payroll to 24.8 percent of total revenue.

Despite the challenges this month, profit conversion remained strong at 46.9 percent of total revenue.

Profit per room for year-to-date 2018 at hotels in Barcelona is now 11.8 percent behind the same period in 2017, which is following robust growth in both 2016 (up 9.6 percent) and 2017 (up 8.4 percent).

“[This] has not been an easy year for hotels in Barcelona with profit levels falling in six of the last eight months,” said Grove. “Whilst the defense of falling visitor numbers across Spain has been attributed to a shift toward a strategy of developing ‘international tourism of quality,’ the drop in Barcelona also could be due to a backlash following last year’s anti-tourism protests, as well as the political unrest following the illegal independence vote in October, which is when hotel performance levels began to fall away.” 

When in Rome

While Rome escaped August's extreme heat, its hotels also struggled during the month, which usually sees plenty of leisure activity. 

The key issue for hotels in Rome is the decline in year-over-year room occupancy, which fell 0.5-percentage-points this month to 65.4 percent from a high of 74.9 percent back in August 2015.

The drop impacted the ability of hotels in the Italian capital to drive non-rooms revenue, which this month fell to just 26.7 percent of total revenue compared to 33.3 percent for the year-to-date 2018.

Despite the 2.6-percent increase in RevPAR to €171.90, the decline in non-rooms revenue resulted in hotels in Rome recording a 2.4-percent drop in TRevPAR to €234.69.

Furthermore, rising costs, including a 1.1-percentage-point increase in payroll to 42.3 percent of total revenue, meant profit conversion at hotels in Rome fell to just 22.1 percent of total revenue.

The challenges faced by Rome hoteliers in recent years is punctuated by the drop in profit per room, which has fallen almost €20 over the last three years to €51.83 in August 2018 from €71.27 in August 2015.