MENA forced to drop ADR as Europe achieves strong hotel performance

Sundus Rotana Muscat, Oman

For hotels in the Middle East & Africa, July marked a low in recent performance as demand levels remained soft during the stifling summer months, according to a recent HotStats poll of full-service hotels. While hotels in the Middle East & Africa recorded a 1-percent increase in room occupancy in July to 60.4 percent, it was at the expense of a 12.7-percent drop in achieved average room rate to $140.73. In response, low demand levels forced hoteliers to discount rates in an attempt to drive top line revenues. 

However, as a result of the movement in volume and price, RevPAR at hotels in the region dropped 11.2 percent to a monthly five-year low of $84.98, which surpasses the previous low of $93.57 recorded in June 2016. Further woe was heaped on to hoteliers in the Middle East & Africa as declines in non-rooms revenues, including food and beverage, which dropped by 6.2 percent, and conference and banqueting, which dropped by 1 percent, contributed to the 9.1-percent year-on-year drop in TrevPAR by 9.1 percent to $149.31. Again, this represented a recent historic low in this metric for hotels in the region. 

Profit per room in July was the lowest recorded in recent years and was 51.8 percent below the average for the 12-months to July 2017 at $73.63. As a result, profit conversion at hotels in the Middle East & Africa fell to a low of just 23.8 percent of total revenue.

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“The poor profit conversion this month will be unfamiliar to hoteliers in the Middle East & Africa, who have become accustomed to recording punchy bottom-line performance,” Pablo Alonso, CEO of HotStats, said in a statement. “However, much to the disappointment of hotel owners and operators in the region, the challenging market conditions are likely to continue in the short term. This is not only due to the labored recovery of the oil industry, but many of the new hotel developments, which were either late in the planning stages or had already broken ground when the crisis hit, are now coming to fruition.” 

Muscat, Oman

While July's performance for hotels in Muscat was stronger than in June, year-on-year properties in the capital of Oman suffered significant declines across all key metrics this month, which included a 177.7-percent drop in profit per room to -$6.76. RevPAR and TrevPAR both saw significant decreases as well, with a RevPAR drop of 24.1 percent to $53.80 and a TrevPAR drop of 24.4 percent to $121.28, causing payroll to rise by 10 percent to 60.3 percent.

In addition to relying heavily on demand from the oil industry, additions to hotel supply in Muscat in 2017 have put further pressure on hotel performance and have included the 152-guestroom Al Irfan International Hotel, the 120-guestroom Muttrah Corniche and the 215-guestroom Sundus Rotana. “As in other locations across the region, it is noteworthy that additions to supply in Muscat are primarily in the mid-market segment, as these destinations look to broaden their appeal to leisure visitors. However, this is likely to not only dilute demand levels, but will put real pressure on room rates at the upscale hotels polled in the HotStats sample,” Alonso added. 

Amman, Jordan 

Despite political demonstrations and disruption in the city, hotels in Amman performed strongly this month, with a 7.8-percent increase in room occupancy to 60.8 percent. This increase successfully offset the 6.9-percent decline in achieved average room rate to $144.84. July was a welcome respite from the year-to-date performance for hotels in Amman, which have struggled to grow top and bottom line performance so far this year. Amman’s struggle was illustrated by the 8.0 percent year-to-date RevPAR decline to $74.74. However, compared to last July, Muscat saw an increase in RevPAR by 6.8 percent to $88.02 in July 2017, allowing payroll to fall 0.7 percent to 27.2 percent. 

The growth this month was even more impressive considering the contribution from the high-yielding contracted corporate and residential conference segments fell to 33.3 percent of rooms revenue, against a year-to-date average of 40.7 percent. Despite the uplift in volume, hotels in Amman suffered declines in non-rooms, including food and beverage by 3.0 percent. However, this was not to the detriment of TrevPAR, which increased by 2.6 percent to $158.01. Due to the growth in top line revenue and cost savings, hotels in Amman recorded a 10.8-percent increase in GOPPAR to $53.22. The increase went someway to offsetting the 24.9 percent year-to-date profit per room decline to $30.39.

Brussels Marriott Hotel Grand Place, Belgium 

Europe fairs better as demand declines

Although Europe saw a similar decrease in demand in July, the region recorded successful performance results, compared to those of the Middle East and Africa region. A 5.6-percent increase in TrevPAR, in addition to cost savings, meant that hotels in Europe recorded a hearty 10.6-percent year-on-year increase in GOPPAR in July. The 5.9-percent increase in RevPAR to €130.52 this month was driven by a 2-percent increase in room occupancy to 78.4 and a 3.1-percent increase in achieved average room rate to €166.40. 

The year-on-year growth in average room rate this month is more notable as waning commercial demand means that July is typically a more challenging month in terms of price for hotels in Europe. However, the rate recorded this month was 5.1 percent above the year-to-date average. In addition to the year-on-year increase in RevPAR, hotels in Europe recorded an increase in non-rooms revenues, including food and beverage by 4.8 percent and conference and banqueting by 7.2 percent, which contributed to the 5.6-percent increase in TrevPAR to €186.34.

“The figures for July paint a very positive picture of performance for hotels across Europe and add to the strong growth so far in 2017,” Alonso said. “What is particularly pleasing is that the growth this month was led by a number of hotel markets which have made a return to stronger performance levels after particularly challenging trading conditions in recent years.”    

Brussels, Belgium

For hotels in Brussels, the 33.5-percent increase in RevPAR to €85.19 in July contributed to the 19.1-percent increase for year-to-date 2017 to €98.65. This increase goes some way to compensating for the 20.2-percent decline in 2016 in the aftermath of the terrorist attacks in March. That said, there is evidence to suggest that the top line bounce back for hotels in Brussels is being driven by an increase in volume, which grew by 17.9 percent year-on-year in July, at the expense of a reduction in rate by 0.2 percent to €120.14. 

The need to drive RevPAR through volume was even more imperative this month as activity in the European Parliament slowed for the summer. There was a notable reduction in demand from the high-yielding contracted corporate and residential conference segments, evidenced by the proportion of volume from the commercial segments falling to just 32.5 percent in July, against a year-to-date average of 44.3 percent. The significant uplift in volume at hotels in Brussels also fueled growth in non-rooms revenues, which contributed to a 27.3-percent increase in TrevPAR to €113.09, but resulted in non-rooms revenue dwindling to just 24.7 percent of total revenue this month. Despite the 5.6-percent reduction, payroll levels at hotels in Brussels remained extremely high at 50.7 percent of total revenue. As a result, profit conversion remained low this month at just 13.8 percent of total revenue while GOPPAR increased significantly by 284.3 percent to €15.64.

Istanbul, Turkey

July was also a very strong month of performance for hotels in Istanbul. The year-on-year uplift this month primarily represented a return to normality after top and bottom line performance crashed in July 2016 in the midst of the failed coup. In addition to a 36.6-percent increase in room occupancy in July, a 22.1-percent uplift in achieved average room rate contributed to the 155.7-percent increase in RevPAR to €70.97. While this represents a significant increase on the same period in 2016, it is less than €6.00 ahead of July 2015 at €65.01. “The growth in the challenged markets this month will provide some welcome respite to owners and operators of properties in those locations. And while it is almost a false positive, Istanbul hoteliers will toast the growth as it comes amidst extremely challenging trading conditions, which have been as a result of significant additions to stock, political uncertainty and terrorist activity,” Alonso added. 

The realignment in TrevPAR, which increased by 127.5 percent to €99.77, and a 34.1-percent saving in payroll to 32.5 percent of total revenue, meant hotels in Istanbul were able to bring GOPPAR back into the black. GOPPAR rose by 572.9 percent to €33.34 from -€7.05 during the same period in 2016.

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