HotStats' MENA Chain Hotels Market Review for the end of 2016 revealed some promising--and troubling--numbers for three Middle Eastern areas. While Dubai is looking better after a rough three quarters in 2016, hotels in Doha and Kuwait are having trouble turning a profit.
Signs of Recovery in Dubai Hotels
In spite of a glut of incoming rooms ahead of the 2020 Expo, profit-per-room in Dubai's hotels were on a decline for the beginning of 2016. Hoteliers in Dubai faced a number of issues that negatively affected top and bottom line performance throughout the year, including significant additions to hotel supply, such as the 1,004-bedroom Westin Al Habtoor City and 828-bedroom Atana Tecom, as well as a migration to three-star hotel products and economic challenges led by the drop in oil prices.
In the first half of the year, profit-per-room fell by 13.2 percent, which was primarily as a result of declining RevPAR (-11.3 percent) levels. Developers were rightly concerned, and took action. In a move to reassure potential supporters, Deyaar Development made an unusual promise to investors on its serviced-apartments project in The Atria, guaranteeing annual returns of 7 percent over the next two years.
By the final quarter of 2016, hotels in Dubai had begun to fight their way back to profit through cost-savings, illustrated by the 0.7 percent increase in profit-per-room in the period from October to December 2016, which was achieved in spite of a 4.4 percent decline in RevPAR.
For 2016 overall, although hotels in Dubai suffered a year-on-year profit decline of 6.8 percent, they successfully reduced their cost base with savings in labor (+1.7 percent) and overheads (+2.8 percent).
Profit Plummets in Doha
Profit-per-room at Doha hotels fell by 23.3 percent in 2016, representing a second consecutive year of significant profit decline for properties in the Qatar capital, according to the latest data from HotStats.
Despite successfully reducing labor (-1.9 percent) and overhead (-3.8 percent) costs on a per available room basis, the drop in revenue far exceeded any cost savings and profit-per-room plummeted in 2016, which was further to the 8.4 percent decline in profit-per-room at hotels in Doha in 2015.
2016 has been a particularly tough year of operation for Doha hotels, having achieved only one month of RevPAR growth in July, when they recorded an increase of just 0.9 percent.
Overall, in addition to an 18.2 percent decline in RevPAR, hotels in Doha suffered declines in ancillary revenues, including Food and Beverage (-11.2 percent) and Conference and Banqueting (-14.6 percent). As a result, TrevPAR (Total Revenue per Available Room) fell by 13.5 percent in 2016, to $297.41.
In an attempt to recover profit, Doha hoteliers have slashed costs in undistributed operating expenses, including admin and general (-15.9 percent), Sales & Marketing (-11.7 percent) and Property & Maintenance (-18.2 percent). However, due to the ongoing decline in revenue, profit per room at hotels in Doha has now declined by approximately 30.0 percent in the 24 months to December 2016.
Kuwait Relies on Volume to Minimize Profit Decline
Profit per room at Kuwait hotels declined by 18.7 percent year-on-year in 2016, continuing the trends from 2014 (+0.5 percent) and 2015 (-2.1 percent).
While hotels in Kuwait maintained their ADR (though at the expense of a 3.7-percentage point decline in occupancy in the first half of 2016), the strategy of rate reduction in Q2 2016 enabled hotels in the city to recover much of the loss and record a 3.2 percentage point increase in occupancy, to 47.4 percent.
The commercial segment remains challenging in Kuwait, with rate declines recorded in the residential conference (-15.5 percent) and corporate (-11.9 percent) segments in 2016 and falling revenues noted in the Food and Beverage (-35.9 percent) and Conference and Banqueting (-8.5 percent) departments. As a result, ancillary revenues now comprise 46.1 percent of total revenue, compared to 54.1 percent in 2015.