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Europe Profit Drop Punctuates Poor Q1 Performance

Revenue declines in March, combined with continued cost creep, sent profit per room down at hotels in mainland Europe, further adding to a challenging start to the year, according to the latest data tracking full-service hotels from HotStats.Hotels in mainland Europe recorded a 2.8-percent year-on-year decline in profit in March, which contributed to a 5.0-percent decrease for Q1 2019. It represented a fourth consecutive month of year-on-year GOPPAR decline.

In addition to recording a 0.2-percent YOY decline in RevPAR, hotels in mainland Europe suffered a 0.6-percent decrease in non-rooms revenues to €54.25 per available room.

As a result of the movement across all revenue centres, TRevPAR at hotels in mainland Europe fell by 0.4 percent in the month. This contributed to the 0.3-percent decline in this measure in Q1 2019.

The decrease in total revenue in March was further hit by escalating costs, which included a 0.6-percentage-point increase in payroll levels as a percentage of total revenue to 35.2 percent, as well as a 0.3-percentage-point increase in overheads as a percentage of total revenue to 24.5 percent.

Despite the decline in revenue and rising costs, hotels in mainland Europe recorded a reasonably healthy profit conversion in March, at 31.1 percent of total revenue.

Profit & Loss Key Performance Indicators – Mainland Europe (in EUR)
March 2019 v. March 2018
RevPAR: -0.2% to €100.88
TRevPAR: -0.4% to €155.13
Payroll %: +0.6 pts. to 35.2%
GOPPAR: -2.8% to €48.17

Whilst hotels in mainland Europe squeezed out a slight 0.1-percent uptick in RevPAR for Q1 2019, it is clear that hotels in the region are finding it increasingly difficult to drive rate, as room occupancy levels have hit a ceiling.

“It’s been a tough start to 2019 for Europe’s hotels, following the weak finish for the Eurozone in Q4 2018,” said Michael Grove, Director of Intelligence and Customer Solutions, EMEA, at HotStats. “The challenges in the economy are having a knock-on effect on the hotel market, as reduced consumer confidence is making it increasingly difficult to drive rate in the corporate segment, which is having a direct impact on profit potential.”

The challenges across the region were no better illustrated than in Munich, where profit levels plummeted by 8.3 percent YOY to €45.35. This was in spite of the Messe München Exhibition Center playing host to the Internet World Expo, which attracted more than 19,000 attendees, and included the Amazon World Convention.

The event offered an opportunity for hoteliers in the Bavarian capital to leverage rate over volume; however, the 6.1-percent YOY increase in achieved average room rate was hurt by a 3.4-percentage-point decline in room occupancy to 65.8 percent. As a result, RevPAR for the month grew by just 0.9 percent.

Furthermore, Munich suffered a 14.6-percent decline in non-rooms revenue. This contributed to a 4.1-percent decline in TRevPAR to €138.70, which was a low for this measure since February 2018 and 25-percent below the TRevPAR for the rolling 12 months to March 2019.

Declining revenue levels were further hit by rising costs, which included a 1.7-percentage-point increase in payroll levels as a percentage of total revenue to 32.7 percent.

Profit & Loss Key Performance Indicators – Munich (in EUR)
March 2019 v. March 2018
RevPAR: +0.9% to €99.24
TRevPAR: -4.1% to €138.70
Payroll %: +1.7 pts. to 32.7%
GOPPAR: -8.3% to €45.35

The profit decrease at hotels in Munich was in contrast to the punchy performance of hotels in Milan, which recorded a 20.8-percent increase in GOPPAR.

The increase in GOPPAR was aided by a 9.8-percent increase in RevPAR, as hotels in the city recorded growth in both room occupancy (up 3.6 percentage points) and achieved average room rate (up 4.5 percent).

This was supported by an increase in revenue across non-rooms departments, which contributed to the 9.6-percent increase in TRevPAR.

And thanks to a 2.2-percentage-point saving in payroll levels as a percentage of total revenue, hotels in Milan recorded a profit contribution of 26.3 percent of total revenue.

Profit & Loss Key Performance Indicators – Milan (in EUR)
March 2019 v. March 2018
RevPAR: +9.8% to €145.10
TRevPAR: +9.6% to €231.90 
Payroll %: -2.2 pts. to 38.6%
GOPPAR: +20.8% to €61.00

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Editor’s Notes:

The hotels profiled in this report are drawn from the HotStats database and reflect the portfolios and distribution of the hotel chains that we survey and which operate in the full-service sector.

Please note: The data samples are reviewed and rebased each year to reflect the changes in the HotStats survey base. As a result, performance ratios published last year may differ from those contained within this report.

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.

GOPPAR - Is the Total Gross Operating Profit for the period divided by the total available rooms during the period.

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