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Profit falls as revenue slides at hotels in the Middle East & Africa

Profit falls as revenue slides at hotels in the Middle East & Africa

Profit per room at hotels in the Middle East & Africa continued its downward spiral in May as year-on-year GOPPAR levels plummeted by -21.5% as revenue fell across all departments and costs continued to escalate, according to the latest worldwide poll of full-service hotels.

In contrast to previous months when hoteliers in the Middle East & Africa have struggled to maintain rate, this month it was room occupancy which fell away, decreasing by 5.5-percentage points year-on-year, to 59.1%.

The considerable year-on-year decrease in volume in May contributed to the plummeting revenue performance across all departments at hotels in the region.

This not only included a -9.1% drop in Rooms Revenue, but significant declines were also recorded in Non-Rooms departments including a drop in Food & Beverage (-10.4%), Conference & Banqueting (-10.1%) and Leisure (-10.4%) revenue on a per available room basis.

As a result of the blanket decline in revenues, TrevPAR at hotels in the region fell by -9.4% in May, to $174.44. This represented a 29.1% month-on-month decline in TrevPAR; however, this is not out of the ordinary at this time of year due to the timing of Ramadan as well as the temperature in the region, which heats up and performance levels fall away.

The decline in revenue levels were hit once again by rising costs, which included a 2.4-percentage point increase in Payroll, to 30.9% of total revenue, as well as a 2.5-percentage point uplift in Overheads, to 29.5% of total revenue.

As a result of the movement in revenue and costs this month, profit per room in the region fell to $52.52, equivalent to a profit conversion of 30.1% of total revenue, which is well below the conversion for year-to-date 2018, at 39.6%.

Furthermore, on a rolling 12-month basis, profit per room at hotels in the Middle East & Africa was recorded at $73.24 this month, which is more than $20 below the same period in 2014/2015 at $94.16 and represents a significant rate of profit decline in recent years.

Profit & Loss Key Performance Indicators – Middle East & Africa (in USD)

May 2018 v May 2017
RevPAR: -9.1% to $97.39
TrevPAR: -9.4% to $174.44
Payroll: +2.4 pts to 30.9%
GOPPAR: -21.5% to $52.52

“May marked the start of Ramadan this year, during which hotels in the region suffer a weakening in hotel performance.

The holy festival typically marks the beginning of the summer, which is sure to be another lean period for hotels in the region and although reducing costs should help somewhat, it is likely that profit levels will continue their downward trajectory. This will be much to the disappointment of hotel owners and operators across the region,” said Pablo Alonso, CEO of HotStats.

This month was a tale of contrasts for hotel markets in the Middle East & Africa, as performance fell away for commercial-led markets, such as Riyadh, due to the timing of Ramadan, but soared in holy cities, such as Makkah.
Hotels in Riyadh recorded a -34.9% year-on-year decline in TrevPAR this month, to $164.45, as a result of falling revenues across all departments, including Rooms (-35.2%), Food & Beverage (-35.1%) and Conference & Banqueting (-53.3%).

In addition to, and as a result of, the decline in revenues, hotels in Riyadh suffered an uplift in Payroll costs in May, which increased by 12.4-percentage points, to 34.6% of total revenue.

Further to the movement in revenue and costs, profit per room at hotels in the capital of Saudi Arabia plunged by -65.4%, to just $43.15. This represented the largest year-on-year decline in GOPPAR since September 2015 and meant that profit levels fell to less than half of the year-to-date average, at $99.47.

In line with the decline across the region, falling volume levels were a key contributor to the declining revenue levels at hotels in Riyadh, with room occupancy falling by -12.1-percentage point year-on-year, to 52.8%. As a result of the reduced demand levels, hoteliers had little selling power and achieved average room rate fell by 20.3% in May, to $173.46.

The commercial sector was a major contributor to the falling volume and price, illustrated by the achieved sector rates, which plummeted in the Corporate (-24.1%) and Residential Conference (-80.6%) segments. Commercial demand in Riyadh contributed more than 52% to the total number of accommodated roomnights at hotels in the city in the 12 months to May 2018.

Profit & Loss Key Performance Indicators – Riyadh (in USD)

May 2018 v May 2017
RevPAR: -35.2% to $91.50
TrevPAR: -34.9% to $164.45
Payroll: +12.4 pts to 34.6%
GOPPAR: -65.4% to $43.15

In contrast to the performance of hotels in Riyadh, hotels in Makkah performed well in May, recording a +114.1% increase in profit per room for the month as the holy city welcomed thousands of Muslims who made the pilgrimage from global origins.

The premium performance was driven by growth in Rooms Revenue, which increased by +65.3% on the back of a +5.3-percentage point increase in room occupancy, to 64.3%, as well as a 51.6% increase in achieved average room rate, which hit $304.56.

The growth in Rooms Revenue, in addition to increasing Non-Rooms revenues contributed to the +57.2% year-on-year increase in TrevPAR at hotels in Makkah in May, to $271.97, this was equivalent to an uplift of almost +$100 on the same period in 2017.

In addition to the uplift in revenues, hotels in Makkah successfully recorded a decline in Payroll levels, which contributed to properties recording a profit conversion at a punchy 61.1% of total revenue.

“Profit performance at hotels in Makkah peaks twice per year, once at the beginning of Ramadan and then again in Hajj, which this year will be in August. This year was no different as top and bottom line performance in the holy city soared this month,” added Pablo.

Profit & Loss Key Performance Indicators – Makkah (in USD)

May 2018 v May 2017
RevPAR: +65.3% to $195.81
TrevPAR: +57.2% to $271.97
Payroll: -8.4 pts to 16.2%
GOPPAR: +114.1% to $166.10