Demand drove UK hotel profits in October

Starboard Hotels has acquired four Ibis Styles hotels in the UK from Carillion for an undisclosed sum.
Ibis Styles Birmingham NEC and Airport. Image: AccorHotels

October was a strong month for hotels in the UK, with a 9-percent, year-over-year increase in profit per room for the month, according to the latest data on full-service hotels from HotStats.

Growth in revenue was led by an 8.3-percent, year-over-year increase in RevPAR to £102.67, which was fueled by a 2.3-percentage-point increase in room occupancy to 83.5 percent and a 5.3-percent increase in average room rate to £122.92.

In addition to the growth in rooms revenue, hotels in the UK recorded year-over-year increases in non-rooms revenues, including F&B (up 4.3 percent) and conference and banqueting (up 5.7 percent) on a per-available-room basis.

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The growth across all departments contributed to the 6.6-percent, year-over-year increase in TRevPAR for the month to £156.36. While this was behind the 2018 peak of £162.59 recorded in July, it remained 10.4 percent above the year-to-date figure at £141.58.

“The robust top-line performance in October was led by demand from the commercial sector, which accounted for almost 40 percent of all accommodated roomnights,” said Michael Grove, director of intelligence and customer solutions, EMEA, at HotStats, in a statement. “Demand levels were also supported by the ongoing political party conference season and leisure demand from school half-term holidays. And despite Storm Callum bringing severe flooding to parts of the UK, it was a relatively settled picture, which even included a royal wedding.”

October’s strong growth helped push profit performance for the year back into positive territory, with year-to-date GOPPAR growth of 1 percent to £54.05.

Newcastle

While the broader UK performed well, hotels in Newcastle continue to struggle, hurt by escalating costs. These included a 1-percentage-point increase in payroll to 30.7 percent of total revenue, and a 1.4-percentage-point increase in overheads to 26.7 percent of total revenue.

RevPAR in the city only grew 0.5 percent and was led by a 2.2-percentage-point, year-over-year increase in occupancy to 77.1 percent. Conversely, average room rate dropped by 2.3 percent to £74.56.

Furthermore, a slim 0.1-percent increase in TRevPAR, to £91.41, was only due to growth in rooms revenue, which was sufficient to offset the decline recorded across non-rooms departments, including a 1.6-percent decline in food and beverage revenue, to £29.74 per available room.

As a result of the movement in revenue and costs, profit per room at hotels in Newcastle dropped by 10.4 percent in October to £25.40, which is equivalent to a profit conversion of just 27.8 percent, according to the HotStats data.

The stats suggest the issue for Newcastle hotels is more long term, illustrated by the ongoing decline in profit per room, which has fallen to £24.37 in the 12 months to October and is almost £5 lower than the £29.03 GOPPAR recorded during the same period in 2014-15.

“In short, hotels in Newcastle are suffering due to an untimely softening in demand, which has been further exacerbated by increasing costs,” said Grove. “This might well be a warning sign for hotel owners and operators in other provincial markets that it is becoming harder to convert revenue into profits.”

Birmingham

At the other end of the spectrum, Birmingham hotels were among the best performing in October thanks to a number of conferences, including the 2018 Conservative Party Conference, which attracted more than 11,000 delegates.

As a result, hotels in Britain’s "second city” were able to record an 8.5-percent, year-over-year increase in profit per room, which grew to a 2018 high of £55.37, more than 46 percent above the year-to-date figure of £37.91.

Growth was primarily due to a 4.2-percent increase in RevPAR, which was fueled by a 5.6-percent increase in average room rate to £97.52, a number that was only slightly below the annual high recorded in September in Birmingham of £97.64, according to HotStats.

In addition to the increase in rooms revenue, growth was recorded across all non-rooms departments and, as a result, TRevPAR for hotels in Birmingham increased by 7.4 percent year-over-year to £119.02.