Following a summer of mixed fortunes, including a welcome year-on-year increase in profit per room in August, hotels in the Middle East & Africa were back to business as usual in September. GOPPAR levels sunk by 17.1 percent year-on-year, according to the latest worldwide poll of full-service hotels from HotStats.
September typically marks a return to ‘normal’ trading conditions for hotels in the Middle East & Africa following the disruption during the summer. With room occupancy levels this month at 66 percent—well ahead of the average for the preceding three-month summer period at 57.5 percent—they looked to be back on track. However, a 10.8-percent decline in achieved average room rate to $158.67 wiped out the 1-percent increase in room occupancy and meant that hotels in the region suffered a 9.5-percent decline in RevPAR. At $105.80, RevPAR at hotels in the Middle East & Africa was 5.5 percent below the year-to-date average of $111.93.
The expected resurgence in performance at hotels in the region is characteristically led by the commercial sector. However, in addition to a drop in volume, a year-on-year decline in sector rates was recorded in the corporate (-8 percent) and residential conference (-8.6 percent) segments this month. In addition to the drop in rooms revenue, hotels in the Middle East & Africa recorded a decline in non-rooms revenue, which included a decrease in food and beverage (-1.7 percent) and leisure (-7 percent) revenue on a per available room basis. As a result, TrevPAR in the region fell by 6.5 percent year-on-year to $183.06.
In line with the growth in volume, a 2.4 percent increase in payroll levels was recorded at hotels in the Middle East & Africa to 29.9 percent of total revenue. However, the rising costs further exacerbated the issue of falling revenues. As a result, GOPPAR levels dropped by 17.1 percent to just $59.83. “Despite oil prices hitting a two-year high in late September, a number of key economies across the Middle East & Africa continue to face challenges as they come to terms with the reduction in oil output due to OPEC-imposed cuts and many look to non-oil industries to stimulate growth. The current challenges in the oil industry have seen Saudi Arabia fall into recession in Q2 2017 with the Qatar economy also struggling. Alongside this, the political landscape in the region is facing major issues. The current challenges in the Middle East & Africa suggest the hotel market will continue to struggle in the short term,” said Pablo Alonso, CEO of HotStats.
While Dubai is one of the few key economies in the Middle East & Africa, which is much less reliant on the oil industry, the city is facing challenges of its own, as the dynamics of the hotel market shift towards the mid-market segment and the volume of supply in the city multiplies in preparation for Expo 2020.
This month, RevPAR at hotels in Dubai fell by 13.4 percent year-on-year to $126.25 due to a decline in both room occupancy by 4.2 percent and achieved average room rate by 8 percent to $162.50. The decline this month contributed to the 2.7-percent drop for year-to-date 2017. It is surprising that the year-on-year decline has not been more severe, with more than 4,000 guestrooms added to the Dubai market in the year to Q3 2017. The increase in hotel stock, which included the 414-guestroom Rixos JBR and the 238-guestroom DoubleTree by Hilton Business Bay, brought the total number of rooms available to 82,200 guestrooms.
In addition to the drop in RevPAR, hotels in Dubai suffered declines in non-rooms revenue this month, which included a drop in food and beverage (-4.4 percent) and leisure (-17.9 percent) revenue on a per available room basis. The decline in revenues across all hotel departments resulted in hotels in Dubai recording a 9.9-percent decline in TrevPAR to $232.37 and a 3.2 percent increase in payroll to 32.2 percent.
Escalating costs contributed to the 27.6-percent decline in GOPPAR to $55.83 at hotels in Dubai this month. This added to the 6.3-percent drop in this measure for year-to-date 2017. A a result, Dubai hotels are on course for a third consecutive year of profit decline further to the drop in 2015 (-20.5 percent) and 2016 (-10.1 percent). “The additions to stock in the Dubai hotel market, many of which are in the mid-market segment, are inevitably diluting top line performance which is having a knock-on effect on the rest of the profit and loss. Despite this, construction projects in the city are continuing unabated and a further 4,100 bedrooms are due to enter the market in Q4 2017, with up to 40,600 rooms being developed in the next two and a half years in the lead up to Expo 2020,” Alonso added.
In contrast to the performance across many hotel markets in the region, hotels in Kuwait were able to record an increase in top and bottom line performance levels in September, but had to work hard to do so. This month, hotels in Kuwait were able to offset a 7.1-percent decline in achieved average room rate with a 5.2-percent increase in room occupancy levels. This resulted in a 3.2-percent increase in RevPAR to $110.72. The year-on-year growth in rooms revenue contributed to the 2.3-percent increase in TrevPAR to $212.65.
As a result of the growth in volume, payroll levels for hotels in Kuwait increased by 1.3 percent to 29.2 percent of total revenue. Despite the increase in costs, GOPPAR increased by 0.3 percent to $87.34 this month, equivalent to a profit conversion of 41.1 percent of total revenue.