Hotels in Middle East & Africa faced profit declines in February 2018

Centro Shaheen by Rotana, Jeddah, Saudi Arabia. Photo credit: Rotana

Hotels in the Middle East and Africa reported a 7.8-percent plunge in February, ending the region's positive performance start for the year, according to the latest figures from HotStats. The significant year-on-year decrease in achieved average room rate drove the profit decline, the consulting company said. 

Profit per room at hotels in the region fell to $82.38 in February, cancelling out the positive performance achieved in January. In response, hotels recorded a 1.2-percent decline in GOPPAR for year-to-date 2018 to $85.12.

Revenue declines and rising costs also led to the decrease in profit at hotels in the Middle East and Africa. A 6.8-decrease in rooms revenue along with declines in non-rooms revenues contributed to a 4.6-percent drop in TrevPAR to $210.95. These departments included food and beverage, which fell 3.6 percent, and conference and banqueting, which dropped 4.2 percent. Along with TrevPAR, RevPAR fell 6.8 percent to $121.20. 

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Hotels in the Middle East & Africa saw a 1.4-percent YOY rise in room occupancy in February to 70.7 percent. However, an 8.7-percent decline in achieve average room rate to $171.49 overshadowed the occupancy growth. Hotels in the region struggled to increase achieved room rate across all segments in February. Best available rate (falling 13.4-percent), residential conference (a 10.4-percent decrease), corporate (11.2-percent) and group leisure (7.8-percent) saw the greatest declines.

In addition, a 1.1-percent rise in payroll to 27.6 percent of total revenue also contributed to profit level declines at hotels in the Middle East and Africa. As a result, profit conversion at these hotels fell 0.9 percent to 39.1 percent. However, this level was above the profit conversion achieved in the 12 months to February 2018 at 37.4 percent of total revenue.  

Jeddah, Saudi Arabia

Jeddah's hotel market saw one of the poorest performance levels in February for the region, recording a 39.7-percent drop in profit per room to $55.23. A decrease in revenue along with rising costs led to the decrease.

A decline in revenue across all departments in February caused TrevPAR to fall 16.8 percent at hotels in the city to $122.68. These included food and beverage revenue, which fell 15.2 percent, conference and banqueting revenue, which fell 13.9 percent, and leisure revenue, which fell 26.2 percent.

Mövenpick Hotel City Star Jeddah, Saudi Arabia. Photo credit: Mövenpick Hotels & Resorts 

The 4.9-percent drop in room occupancy to 57.2 percent also caused rooms revenue at Jeddah's hotels to decline 17.2 percent YOY to $122.68, and spurred a 10.1-percent drop in achieved average room rate to $214.54. Room occupancy levels at these hotels are under pressure from supply growth. Over the last 18 months, Jeddah hotel inventory additions included the 304-room Rocco Forte Assila Hotel, the 224-room Ritz-Carlton, the 252-room Centro Shaheen by Rotana, the 129-room Citadines Al Salamah, the 228-room Mövenpick Hotel City Star Jeddah and the 142-room Radisson Blu Al Salamah. As a result, room occupancy levels have plunged 12.1 percent within the last 36 months to 66.8 percent in the 12 months to February 2018 from 78.9 percent in the 12 months to March 2015. 

Rising costs, including an 8.1-percent increase in payroll to 40.8 percent of total revenue, also contributed to profit conversions at Jeddah's hotels dropping to 26 percent of total revenue. “The Jeddah hotel market is facing several critical issues,” Pablo Alonso, CEO of HotStats, said in a statement. “In addition to plummeting room occupancy levels, additions to supply have increased the competitiveness of the market and put pressure on lesser quality assets. As a result, this has forced several hotels out of the market, which has included the Sofitel being downgraded to a Pullman and then debadged completely. There is also a flight to value from the domestic corporate and leisure market, which is impacting top line performance. Furthermore, changes to labor legislation, which has included an increase in the expat levy, has had a significant impact on payroll costs and subsequently profit levels at hotels in Jeddah. These are all issues which are unlikely to improve anytime soon.” 

Kuwait City, Kuwait 

Kuwait City's profit gains contrasted the poor performance seen across the region. The capital recorded a 50.1-percent increase in profit per room in February to $160.04, marking the fourth consecutive month of YOY profit growth for hotels in Kuwait City. A 25.2-percent boost in TrevPAR to $310.26 drove the growth in GOPPAR at Kuwait City's hotels primarily due to a 29.7-percent increase in RevPAR to $169.79. 

An 8.3-percent increase in room occupancy to 67.3 percent and a 13.8-percent increase in achieved room rate to $251.49 allowed for the rise in RevPAR at Kuwait City's hotels in February. The 3.4-percent decrease in payroll to 24.1 percent also allowed profits to grow. The 38.9-percent year-to-date rise in profit per room at Kuwait City's hotels marked a positive shift from the poor GOPPAR levels seen at the beginning of 2018, 2016, which dropped 14.6 percent, and 2017, which dropped 1.9 percent.  

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