Profit per room plunges at Middle East, Africa hotels in April

Swiss International Palace Hotel Manama. Photo credit: Swiss International Hotels & Resorts(Image: Swiss International Hotels & Resorts)

Profit per room at hotels in the Middle East and Africa dropped 12.1 percent year-on-year in April 2018 as revenue levels crashed on the back of plummeting achieved average room rate, according to the latest data from HotStats.  

Properties in the region were hit hard in April by a 12.1-percent decline in gross operating profit per available room, which fell to $93.21. The drop is a stark contrast from the seemingly positive period of operation in Q1 2018, in which hotels in the Middle East and Africa recorded a 0.9-percent YOY increase in profit per room. 

The 7.4-percent decline in total revenue-per-available-room levels to $224.61 drove the decrease in profit per room. A 7.8-percent decline in revenue in the rooms department as well as falling non-rooms revenue, including food and beverage (-6.7 percent) and conference and banqueting (-3 percent) led to this decrease in total RevPAR.

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Hotels in the Middle East and Africa successfully recorded an increase in volume again in April, represented by the 0.3-percent rise in room occupancy to 74.9 percent. However, this was entirely wiped out by the 8.8-percent decline in achieved average room rate, which fell to $176.22 and led to the 7.8-percent decrease in RevPAR to $132.01.

Although hotels in the Middle East and Africa have been battling with price over the past 12 months, April was notable for the decline in rate across all market segments, including best available rate, which dropped 15.7 percent; residential conference, which fell 7.4 percent; corporate, which declined 9.1 percent; individual leisure, which decreased 3.3 percent; and group leisure, which dropped 5.6 percent. 

Escalating costs further exacerbated the decline in revenue levels. These costs included a 1.5-percent increase in payroll to 25 percent of total revenue and a 1.2-percent rise in overheads to 23.8 percent of total revenue. 

As a result, profit per room in the region fell to $93.21, equivalent to a profit conversion of 41.5 percent of total revenue. This contributed to the 2.8-percent decline in GOPPAR for year-to-date 2018. “2018 was shaping up to be a positive year for hotels in the Middle East & Africa, having recorded year-on-year growth in profit per room in Q1 2018," Pablo Alonso, CEO of HotStats, said in a statement. "However, the decline this month means that profit performance in the region is now back in the red and hotels face another year of decline following the challenges in 2016 and 2017.”  

Manama, Bahrain

Manama was one of the worst-hit markets in April 2018. The country recorded significant decreases in top- and bottom-line performance, despite the province hosting the Formula One Grand Prix. Profit per room at hotels in the city, the capital of Bahrain, fell 24.5 percent YOY to $61.41 on the back of declining revenue levels and rising costs.  

In line with the Middle East and Africa market overall, achieved average room rate at hotels in Manama fell 7.7 percent to $179.26. However, hotels also recorded a 10.9-percent decline in room occupancy to 58.1 percent, leading to the 22.2-percent drop in RevPAR to $104.23.   

As a result of the drop in volume at hotels in Manama, declines were also recorded in non-rooms revenues, which included a significant 23.8-percent YOY decrease in food-and-beverage revenue, a 19.1-percent decrease in conference and banqueting revenue and a 16-percent decrease in leisure revenue. In response, total RevPAR levels fell 22.1 percent to $159.51. Profit levels were hit further by a 1.5-percent increase in payroll to 27.5 percent of total revenue, which drove profit conversion to fall to 38.5 percent of total revenue. 

“Although the Bahrain Tourism and Exhibitions Authority reported that hotels in the area benefited from 23,000 room bookings during the weekend of the Grand Prix, this does not seem to have translated to the usual buoyant performance for hotels in Manama. While recent hotel openings, including the 441-bedroom Wyndham Garden and the 164-bedroom Park Regis Lotus Hotel, are likely to have dampened performance this month, it is clear that the challenging economic conditions are continuing to hamper hotel performance in the Bahrain capital,” Alonso said. 

Doha, Qatar

In line with the decline in performance levels in Manama, hotels in Doha are continuing to face challenges, partly from the trade blockade imposed by Saudi Arabia, the United Arab Emirates, Bahrain and Egypt. Hotels in Doha are struggling to maintain price, which fell 12.7 percent during April to $158.58. 

These hotels also saw falling room occupancy levels, which dropped 4.2-percent to 71.2 percent. This contributed to the ongoing drop in achieved average room rate in Doha over the past three years to $160.82 in the 12 months to April 2018. The rate fell almost $60 from the $218.42 during the same period in 2014/2015. The 17.5-percent decline in rooms revenues along with the falling non-rooms revenues contributed to the 11.7-percent decline in total RevPAR at hotels in Doha in April to $297.73. 

Hotels in Doha recorded cost savings, which included a 1.1-percent drop in payroll to 25 percent of total revenue. However, these hotels suffered a 14.2-percent decline in profit per room in April to $112.51. This is equivalent to a profit conversion of 37.8 percent of total revenue. RevPAR, in response, fell 17.5 percent to $112.95. The decline contributed to the 9.8-percent year-to-date drop in this measure to $105.30.