MENA hotels chalk up full year of profit decline: HotStats

Hilton plans to open nine hotels with 2,390 guestrooms in Upper Egypt and other governorates within the next five years.
Hilton opened the Hilton Alexandria King's Ranch in 2016. The city was one of the few to have a positive month in August. Photo credit: Hilton

August marked a full year of profit decline at Middle East and North Africa hotels, with profit per room falling 7 percent year over year to $58.06. In comparison, gross operating profit per available room in August 2018 was up 24.8 percent over August 2017.  

Consistent with the past 12 months to August, decline in profit was led by a drop in revenue per available room, which fell 4.2 percent year over year to $107.26. This was affected by a 4.4 percent drop in average room rate to $161.10. Occupancy increased by a marginal 0.2 percentage points to 66.6 percent.

As is normal for the month, according to HotStats, the market mix was dominated by the leisure segment, which accounted for 48.4 percent of all room nights sold. The commercial segment, meanwhile, made up 24.9 percent of all room nights sold, down from an average of 31.1 percent for year-to-date 2019.

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The shift in demand contributed to a decline across all revenue centers, including food and beverage (down 2.7 percent) and leisure (down 1.2 percent). As a result, total RevPAR at hotels in the region fell by 3.8 percent to $173.34.

 
HotStats MENA August 2019
Source: HotStats

Despite the decline in revenue, MENA hotels successfully recorded 1.6 percent year-over-year savings in payroll costs, which fell to $52.10 per available room, noted HotStats. Michael Grove, managing director, EMEA, for HotStats, argued this improvement in savings is notable given the other falling numbers. “Hotels in the Middle East and North Africa have endured a spate of monthly declines in profit per room,” he said. “Now more than ever, it is key that hotels in the region watch and manage costs to try and preserve eroding profit levels.” 

United Arab Emirates

The UAE as a whole has seen similar results to the region, with GOPPAR down 18.1 percent year over year in August and down 13.1 percent year to date, Grove told Hotel Management.

“Dubai, like nearly all of the GCC area, has seen a few years of downward trend in profits, with year over year GOPPAR decline every month this year save for June,” said Grove. The Emirate has reported occupancy numbers at “relatively strong levels,” he added, but ADR decline has been “rampant” and has affected RevPAR, which dropped 8.2 percent year over year in August. “The difficulties in Dubai are mostly supply-driven, although the increase in visitor numbers relating to Expo 2020 should drive greater demand,” Grove said, noting the supply increase has affected food and beverage and other revenues. This increase, in addition to rising costs of goods, labor and services, has compounded the strain on profits, he indicated.

Abu Dhabi, meanwhile, is “showing signs of life” with a year-over-year GOPPAR increase in August and a 10.2 percent year-to-date gain, added David Eisen, HotStats' director of hotel intelligence.

Medina, Saudi Arabia

While the city of Medina normally sees an increase in metrics thanks to the annual five-day Hajj pilgrimage, the city “failed to capitalize” on the boost in August, HotStats reported, noting the city’s metrics made for a “mixed month of performance.” 

The uplift in demand drove a 5.9 percent year-over-year increase in RevPAR, which was led by a 5.3 percent increase in average room rate.

However, plummeting ancillary revenues, which included a 22.8 percent decrease in food and beverage revenue, contributed to a 13.1 percent year-over-year decrease in TRevPAR.

As a result of the movement in revenue and costs, profit per room at hotels in Medina fell 14.9 percent in the month to $231.13, which contributed to the 11.8 percent year to date decline in this measure, according to HotStats' data.

Alexandria, Egypt

One of the few markets to have a positive month in the region was the Egyptian coastal resort of Alexandria, where profit per room increased 7.4 percent year over year to $82.07, a peak for the year. The increase was led by a 15.2-percentage-point year-over-year increase in room occupancy, which reached 85 percent and cancelled out the 13.7 percent year-over-year drop in average room rate to $111.75, according to HotStats.

The 4.9 percent growth in RevPAR was supported by a 13.6 percent increase in ancillary revenues, which grew to $68.29 and comprised 41.8 percent of total revenue this month.

A year ago, Colliers International predicted hotels in Alexandria would see a 4 percent increase in RevPAR thanks to "consistent growth in corporate and leisure demand." The city was the top hospitality market in the region for Q1, with a 10 percent growth in occupancy and 27 percent growth in ADR. Colliers International's MENA quarterly review suggested positive performance in the Egyptian market has resulted in renewed investor confidence, evidenced by the announcement of new hotel projects, such as from Steigenberger and Rixos.

On the down side, hotels in the city are facing challenges to payroll, which increased by 12.7 percent year-over-year, and has almost doubled on a rolling 12-month basis over the last three years, HotStats noted, adding profit conversion was recorded at 50.2 percent of total revenue.

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