Warm weather boosts profits at UK hotels

Arora Group's dual-branded Heathrow Terminal 4 airport hotel has entered the final stage of construction. 
Holiday Inn Express London-Heathrow Terminal 4 Image: Arora Group

As warm temperatures boosted demand from both domestic and international leisure sources, hotels in the UK recorded a 9.2-percent year-over-year increase in profit per room in August.

According to the latest data tracking full-service hotels from HotStats, profit levels at UK hotels “soared” over the summer, with significant year-over-year growth recorded in both July (up 7.2 percent) and August (up 9.2 percent), which the company credits to above-average temperatures this summer.

The growth in GOPPAR this month was driven by volume from the leisure segment, which accounted for 40.6 percent of accommodated room nights, well above the annual average of 32.1 percent for the 12 months to August 2018.

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As well as contributing to the increase in volume, the achieved rate in the leisure segment also recorded year-over-year growth, including the individual leisure (up 3.4 percent) and group leisure (up 1.3 percent) sectors.

Overall, hotels in the UK recorded a 2.7-percentage-point increase in room occupancy to a lofty 84.8 percent in August, as well as a 4.6-percent increase in achieved average room rate to £118.84, driving an 8-percent increase in RevPAR for the month to £100.72.

Year-over-year growth was also recorded in non-rooms revenues, including food and beverage (up 2.1 percent) on a per-available-room basis, which contributed to a 5.9-percent increase in TRevPAR to £142.88.

As a result of the movement in revenue and costs, GOPPAR grew to £55.18, equivalent to a profit conversion of 38.6 percent of total revenue.

One frustration for UK hoteliers this month will be the volume of bookings via third-party websites, illustrated by the uplift in Rooms Cost of Sales (the HotStats measure of travel agent commissions, reservations fees, GDS fees, third-party fees and internet booking fees), which increased by 8.9 percent year-over-year to £7.50 per available room.

Downturn at Heathrow

In contrast to the growth in profit for hotels across the UK, properties in proximity to Heathrow Airport suffered a 2.5-percent decline in GOPPAR in August. 

While room occupancy at Heathrow hotels increased 1.7-percent to 87.7 percent, the prevalence of lower-yielding leisure demand in August meant that achieved average room rate dropped 0.4 percent year-over-year to £69.87. This was the lowest rate recorded at Heathrow hotels since August 2016 when it fell to £68.59.

Despite the low average room rate, RevPAR at hotels at Heathrow Airport increased by 1.6 percent in August to £61.28, which contributed to the 0.7-percent increase in TRevPAR to £86.06.

“The drop in profit at Heathrow hotels this month is somewhat surprising considering the volume of traffic through the airport, particularly as it was on the back of the busiest day ever for the airport on July 29,” said Michael Grove, director of intelligence and customer solutions, EMEA at HotStats. “However, the decline is illustrative of the endemic cost challenges facing hotels in the UK at the moment, which meant the news of inflation creeping up to 2.4 percent was even less welcome.”