Cost growth impacting Middle East, North Africa gains

Despite February's declines, hotels in Sharm El Sheikh, like the Marriott Resort, are seeing improved numbers. Photo credit: Marriott International (STR stated that occupancy grew 21.2 percent to 60.1 percent in Q1 while ADR reached LE 1,291.72 and RevPAR rose 35.5 percent to LE 775.69.)

February was a rough month for hotels in the Middle East and North Africa region, according to the latest data from HotStats tracking full-service hotels. it was the sixth consecutive month of year-over-year profit decline, in spite of a slight rise in revenue per available room (RevPAR).

Finding a Balance

Total gross operating profit (GOPPAR) for the month declined 4.3 percent year over year and as of the end of the month, profit levels in the region were already 9.6 percent behind the same period in 2018.

The decline in profit was led by a 1.6-percent decrease in non-rooms revenue, which fell to $89.33, equivalent to 42.2 percent of total revenue. Still, ancillary revenues did not face a blanket decline as the food and beverage department reported year-over-year growth of 1.1 percent on a per-available-room basis.

And while RevPAR for the month was up 0.5 percent (growing to $122.39, 8 percent higher than the average for the rolling 12 months to February), total RevPAR (TRevPAR) suffered a 0.4-percent decline.

According to HotStats, growth in rooms revenue was driven by a 2.6-percentage-point increase in occupancy to 73.9 percent, which was one of the highest room occupancies recorded in the region in the last 12 months. Average room rate was down 3.1 percent year over year.

Rising costs evaporated the marginal revenue growth, the data showed, noting these were led by a 0.6-percent jump in total hotel labor costs and a 2.1-percent increase in total overheads on a per-available-room basis.

Profit margin in the region was 37.5 percent of total revenue, marking the sixth consecutive month of profit conversion erosion, according to HotStats.

“MENA hotels are unfortunately part of a broader trend where flagging revenue is being gobbled up by rising costs, leading to profit decay,” said Michael Grove, director of intelligence and customer solutions, EMEA, at HotStats. “In a slowing economic climate, hoteliers will need to figure out canny ways to cut down on expense in order to deliver on the bottom line.”

Sharm El Sheikh's Return

One bright spot in the region was Sharm El Sheikh, Egypt. Following the October 31, 2015, downing of a Russian passenger plane carrying 224 passengers from Sharm El Sheikh International Airport, a number of European countries and Russia suspended direct flights to the Egyptian resort town. More than three years later, a ban on flights from the U.K. still remains, but Russia has now lifted its own ban and tourism throughout the region is getting stronger, according to HotStats. A report by the Arabian Travel Market noted the yearly number of visitors to Egypt is expected to increase by 50 percent over the next three years.

Sharm El Sheikh hotels are slowly benefitting from these improvements, HotStats indicated. A profit increase in February marks the sixth consecutive month of growth in this measure and, over the last 28 months, year-over-year GOPPAR has fallen only twice.

Kuwait City

Performance of hotels in Kuwait City was more reflective of the challenges across MENA, with profit per room falling by 41.3 percent year over year to $92.70, as the city continues to be hit by declining revenue levels and rising costs, the data showed. 

As a result of falling room occupancy (down 9.1 percentage points), achieved average room rate (down 14.6 percent) and non-rooms revenues (down 23.9 percent), TRevPAR decreased by more than $75 year over year to $229.27.

On the cost side, while hotel labor costs on a per-available-room basis were down 8.4 percent year over year, as a percentage of total revenue they were up 5.4 percentage points, illustrating revenue corrosion, according to HotStats.

Profit conversion was at 40.4 percent of total revenue, down 11.2 percentage points over the same time prior.