Rising costs hurt Europe hotel profits in Februrary

Hesperia Barcelona Tower
While rising costs outpaced revenue growth in Barcelona, the Hesperia Barcelona Tower is on track to become the Hyatt Regency Barcelona Fira later this year. Photo credit: Hesperia Hotels & Resorts

Despite slight upticks in revenue per available room (RevPAR) and total RevPAR, profit per room at hotels in mainland Europe fell in February, unmasking flow-through challenges, according to the latest data from HotStats tracking full-service hotels.

It’s an ongoing concern that stretches back to last year. The 4.1-percent year-over-year drop in total gross operating profit (GOPPAR) is the third consecutive month the key performance indicator has declined and follows a January year-over-year decrease of 9.7 percent.  

Uneven Revenue

RevPAR ticked slightly upward 0.9 percent, fueled by a 2.2-percent increase in achieved average room rate to €143.14, according to HotStats, while year-over-year occupancy fell by 0.8 percentage points to 62.2 percent. 

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Falling ancillary revenues in February included declines in food and beverage, which was down 0.8 percent year over year, and was accompanied by a 6.2-percent year-over-year jump in food cost of sales on a per-available-room basis, HotStats noted.

TRevPAR increased a faint 0.1 percent to €138.26 and although this was more than €10 above the TRevPAR recorded in January, it remained almost €40 below the 12 months to February at €175.37, according to HotStats. 

But as with MENA hotels, the meager growth in total revenue was wiped out by rising costs, which included a 0.5-percentage-point increase in payroll levels as a percentage of total revenue to 41.8 percent, as well as a 0.5-percentage-point increase in overheads as a percentage of total revenue to 28.6 percent, HotStats reported.

As a result, profit contribution was recorded at just 21.3 percent of total revenue. Furthermore, flow-through for the month was recorded at -781 percent, illustrating the challenges of rising costs against static revenues in the region, the data indicated.

“Since late 2016, RevPAR and TRevPAR have made healthy month-over-month advances, but are now flattening, and even turning negative in some instances,” said Michael Grove, director of intelligence and customer solutions, EMEA, at HotStats. “Hoteliers are having issue growing revenues high enough to contain mounting costs, resulting in slight to negative profit.” 

Barcelona Struggles

The impact of rising costs outpacing revenue growth were no better illustrated than in Barcelona, according to HotStats, where hotels suffered a 14.7-percent year-over-year decline in GOPPAR to €97.11 in spite of a 2-percent increase in RevPAR to €167.01. 

As a result of movement in departmental revenues, TRevPAR fell by 5.1 percent to €259.95.

In addition, rising costs, which included a 5.6-percent increase in total hotel labor costs on a per-available-room basis, were a further pain point for hoteliers.  

Berlin Rising

In contrast, Berlin recorded a 16.6-percent increase in profit per room in February to €62.48, which was 13.5-percent above the GOPPAR recorded in the 12 months to February 2019 at €55.07, noted HotStats. 

Growth was led by an 8.6-percent increase in RevPAR to €125.70 and an even greater 11.3-percent rise in TRevPAR to €199.81.  

Thanks to a 1-percentage-point saving in payroll levels as a percentage of total revenue, hotels in Berlin recorded a profit contribution of 31.3 percent of total revenue in the month, according to HotStats. 

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