UK hotels suffer profit declines in February

The Hilton Manchester Airport. Photo credit: Hilton (Year-on-year profit per room at hotels in the UK dropped 5.1 percent in February 2018 as cost increases continue to surge, according to HotStats. )

Year-on-year profit per room at hotels in the UK dropped 5.1 percent in February 2018, as cost increases continue to surge, according to HotStats. However, UK hotels saw an increase in revenue across several departments while RevPAR rose 0.4 percent to £77.85.

UK hotels recorded a 0.3-percent YOY TrevPAR increase in February to £122.64, which was attributed to rises across all revenue departments. These include rooms revenue, which rose 0.4 percent, food and beverage revenue, which rose 0.2 percent, and conference and banqueting revenue, which rose 3.6 percent.

The 1.3-percent increase in achieved average room rate to £106.70 drove rooms revenue growth in the UK although room occupancy dropped 0.6 percent to 73.0 percent. Meanwhile, volume struggled to grow beyond current levels in February. 

Escalating costs also overshadowed top-line revenue, including a 1.0-percent increase in payroll to 32.5 percent of total revenue. Overheads, which rose 0.9 percent YOY to 26.3 percent of total revenue, saw cost increases. This was mainly due to a 7.1-percent in utility costs, which grew £5.55 on a per available room basis. In response, GOPPAR at UK’s hotels dropped 4.8 percent YOY to £36.65 in February—a profit conversion of 29.9 percent of total revenue. 

The hotel’s payroll rises put pressure on profitability, especially in the rooms department. Rooms saw a 0.5-percent drop in profit conversion to 69.9 percent of rooms revenue due to a 0.5-percent rise in rooms payroll to 15.5 percent and a 0.1-percent increase in rooms expenses to 6.6 percent of rooms revenue. “It’s been a tough start to 2018 for hotels in the UK. After several years of consistent growth, the upward trajectory has stalled somewhat, which seems to be as a result of occupancy levels hitting a ceiling. Now may be the perfect time for hoteliers to consider an alternative strategy, which focuses on searching for opportunities to increase Non-Rooms Revenues, as well as preserving profit levels by reducing costs. This is, of course, easier said than done,” Pablo Alonso, CEO of HotStats, said in a statement. 

Heathrow Airport's hotels

The UK’s hotels at Heathrow Airport saw a drop in profit per room not only due to rising costs, but also declines in top line performance. Performance was mainly hit by changing weather conditions in February, which led to several flight cancellations throughout the month. RevPAR saw a 4.6-percent decline to £54.58 in February, also. 

TrevPAR at Heathrow’s hotels also dropped 5.3 percent YOY to £79.77 due to a 4.6-percent drop in rooms revenue, a 9.4-percent decline in food and beverage revenue and a 5.2-percent decline in conference and banqueting revenue on a per available room basis.

A 3.2-percent decrease in room occupancy to 73.0 percent along with a 0.4-percent decrease in achieved average room rate to £74.78 drove decreases in rooms revenue at Heathrow’s hotels. “Heathrow airport is prone to flight cancellations during poor weather conditions, such as snow, ice or fog, and this can sometimes lead to a spike in local hotel performance if passengers are stranded in the area. However, the prolonged period of snowfall in February, which included a battering by the ‘Beast from the East’ meant people just did not travel unless it was essential, leading to a drop in demand and consequent decline in profit levels,” Alonso said. 

Meanwhile, hotels at the airport also reported a 2.5-percent rise in overheads to 28.8 percent of total revenue with utility expenses rising 23.1 percent YOY to £4.64 per available room. GOPPAR at these hotels fell 8.9 percent to £23.29 in response to rising costs. This increase drove 2018’s GOPPAR levels down 12.9 percent, marking a poor start to the year for hotels. 

Manchester Airport's hotels  

Manchester Airport hotels experienced similar declines in top- and bottom-line performance due to delays and flight cancellations in February.

The airport hotels were able to record a 2.6-percent rise in achieved average room rate this month to £85.21. However, the 4.8-percent drop in room occupancy to 84.8 percent overshadowed these results as RevPAR dropped 2.9 percent to £72.26, in response.

Non-rooms revenues at Manchester Airport’s hotels also fell, contributing to the 1.9-percent drop in TrevPAR to £111.74. Rising costs exacerbated falling revenue at these hotels, including a 1.4-percent increase in payroll to 27.8 percent of total revenue. Meanwhile, these rising costs also led profit per room for hotels at Manchester Airport to drop 1.8 percent to £38.37 in February at 34.3 percent of total revenue. 

However, demand levels at Manchester Airport remain strong, especially with an 8.5-percent YOY increase in passenger numbers last year to 27.8 million. More than 1,000 guestrooms are currently in talks for development in the local market over the next few years to meet this strong demand. New hotel projects for Manchester Airport include a £100-million Hampton by Hilton/Hilton Garden Inn, which could add 629-guestrooms to the market’s inventory.