April 4, 2018 12:00 pm

The positive start to the year for hotels in the Middle East & Africa was short lived as profit per room fell by 7.8% in February, led by a significant year-on-year decline in achieved average room rate, according to the latest worldwide poll of full-service hotels from HotStats.

Profit per room at hotels in the Middle East & Africa fell to $82.38 this month, which completely cancelled out the positive performance in January and led to hotels in the region recording a 1.2% decline in GOPPAR for year-to-date 2018, to $85.12.

The drop in profit at hotels in the Middle East & Africa was as a result of a decline in revenue as well as rising costs. In addition to a 6.8% decrease in revenue in the Rooms department, declines in Non-Rooms revenues, including Food and Beverage (-3.6%) and Conference & Banqueting (-4.2%), contributed to the 4.6% decline in TrevPAR, to $210.95.

Whilst hotels in the Middle East & Africa recorded a 1.4-percentage point year-on-year increase in room occupancy in February, to 70.7%, this was completely wiped out by an 8.7% drop in achieved average room rate, to $171.49.

The challenges in achieved average room rate for hotels in the region are clear, with a fall in rate recorded across all segments in February, with the greatest margin of decline recorded in the Best Available Rate (-13.4%), Residential Conference (-10.4%), Corporate (-11.2%) and Group Leisure (-7.8%) segments.

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

February 2018 v February 2017

RevPAR: -6.8% to $121.20

TrevPAR: -4.6% to $210.95

Payroll: +1.1 pts to 27.6%

GOPPAR: -7.8% to $82.38

In addition to the drop in TrevPAR, profit levels at hotels in the Middle East & Africa were hit by a further 1.1-percentage point increase in Payroll, to 27.6% of total revenue.

As a result of the movement in revenue and costs, profit conversion at hotels in the region was recorded at 39.1%, which, despite being 0.9 percentage points below the same period in 2017, was above the profit conversion for hotels in the Middle East & Africa in the 12 months to February 2018 at 37.4% of total revenue.

The Jeddah hotel market was amongst the poorest performing in February, recording a 39.7% decline in profit per room on the back of a drop in revenue and rising costs.

The 16.8% decline in TrevPAR at hotels in Jeddah was as a result of falling revenue levels across all departments, including Food and Beverage (-15.2%), Conference and Banqueting (-13.9%) and Leisure (-26.2%).

The 17.2% year-on-year decline in Rooms Revenue at hotels in the Saudi city was as a result of the ongoing decline in room occupancy levels, which were recorded at -4.9 percentage points this month, to 57.2%, as well as a 10.1% drop in achieved average room rate, to $214.54.

Room occupancy levels at hotels in Jeddah in particular are under pressure from additions to supply, which over the last 18 months have included the 304-bedroom Rocco Forte Assila Hotel, 224-bedroom Ritz Carlton, 252-bedroom Centro Shaheen by Rotana, 129-bedroom Citadines Al Salamah, 228-bedroom Movenpick City Star and 142-bedroom Radisson Blu Al Samalah.

As a result, room occupancy levels at hotels in Jeddah have plummeted by 12.1-percentage points over the last 36 months, to 66.8% in the 12 months to February 2018, from 78.9% in the 12 months to March 2015.

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

February 2018 v February 2017

RevPAR: -17.2% to $122.68

TrevPAR: -16.8% to $212.15

Payroll: +8.1 pts to 40.8%

GOPPAR: -39.7% to $55.23

In addition to the drop in revenues, rising costs, which included an 8.1-percentage point increase in Payroll to 40.8% of total revenue, led to profit conversion at hotels in Jeddah falling to just 26% of total revenue.

“The Jeddah hotel market is facing several critical issues. In addition to plummeting room occupancy levels, additions to supply have increased the competitiveness of the market and put pressure on lesser quality assets. As a result, this has forced several hotels out of the market, which has included the Sofitel being downgraded to a Pullman and then debadged completely.

There is also a flight to value from the domestic corporate and leisure market, which is impacting top line performance.

Furthermore, changes to labour legislation, which has included an increase in the expat levy, has had a significant impact on payroll costs and subsequently profit levels at hotels in Jeddah. These are all issues which are unlikely to improve anytime soon,” said Pablo Alonso, CEO of HotStats. 

In contrast to the performance across the Middle East & Africa, hotels in Kuwait City recorded a 50.1% increase in profit per room in February to $160.04, which marked a fourth consecutive month of year-on-year profit growth for hotels in the Kuwait capital.

The growth in GOPPAR at hotels in Kuwait City was led by a 25.2% increase in TrevPAR, to $310.26, which was primarily due to a 29.7% increase in RevPAR, to $169.79.

Profit & Loss Key Performance Indicators – Kuwait City (in USD)

February 2018 v February 2017

RevPAR: +29.7% to $169.79

TrevPAR: +25.2% to $310.26

Payroll: -3.4 pts to 24.1%

GOPPAR: +50.1% to $160.04

For hotels in Kuwait, the 29.7% increase in RevPAR this month was driven by an 8.3-percentage point increase in room occupancy, to 67.3%, as well as a 13.8% increase in achieved average room rate, to $251.49.

The 38.9% year-to-date increase in profit per room at hotels in Kuwait City represents a change in fortunes since the beginning of 2018 and is further to GOPPAR declines in 2016 (-14.6%) and 2017 (-1.9%).

 

Glossary:

Occupancy (%) – Is that proportion of the bedrooms available during the period which are occupied during the period.

Average Room Rate (ARR) – Is the total bedroom revenue for the period divided by the total bedrooms occupied during the period.

Room Revpar (RevPAR) – Is the total bedroom revenue for the period divided by the total available rooms during the period.

Total Revpar (TRevPAR) – Is the combined total of all revenues divided by the total available rooms during the period.

Payroll % – Is the payroll for all hotels in the sample as a percentage of total revenue.

GOP PAR – Is the Total Gross Operating Profit for the period divided by the total available rooms during the period.

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