Profit Decline Continues in Middle East & North Africa Hotels

Profit levels at hotels in the Middle East & North Africa remained under pressure in November, as revenues were hit by declines in both price and volume in the normally reliable commercial segment, according to the latest data tracking full-service hotels from HotStats.

Profit per room continued along a downward trend, as year-over-year GOPPAR fell 8.8 percent to $92.74.

Though the number was 33 percent higher than the profit per room recorded in the region for year-to-date 2018, it represented a third consecutive month of profit decline.

Falling profit levels were hit by declining revenues across all departments this month, including Rooms (down 4.6 percent), Food & Beverage (down 5.7 percent), Conference & Banqueting (down 2.6 percent) and Leisure (down 4.4 percent), on a per-available-room basis.

As a result of the movement in departmental revenues, TRevPAR at hotels in MENA fell by 4.6 percent YOY in November to $227.36.

Once again, the drop in revenue was impacted by rising costs, which included a 0.9-percentage-point increase in payroll to 25.4 percent of total revenue, as well as a 1.0-percentage-point increase in overheads, which grew to 24.1 percent of total revenue.

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

While top- and bottom-line revenue at hotels in the region were ahead of the YTD performance due to the typical uplift in activity from the commercial segment, there was a distinct weakening in the sector as rates fell in both the Residential Conference (down 11.7 percent) and Corporate (down 15.9 percent) segments.

The Middle East & North Africa hotel market continues to be challenged and, unfortunately, it is the base business that is now being hit the hardest, with crippling rate decline in the commercial segment over the last 36 months, including a drop of $50 in the corporate segment and more than $35 in the residential conference segment.
—Michael Grove, Director of Intelligence, EMEA, HotStats. 

One outlier is Abu Dhabi, which fared well in November, recording a 1.8-percent increase in profit per room, in spite of a 2.2-percent decrease in TRevPAR.

November is typically a strong month of top- and bottom-line performance for hotels in Abu Dhabi, which is fuelled by demand from the Formula One Grand Prix. This month was no exception, with GOPPAR peaking for the year at $145.76, almost 200 percent above the profit per room recorded in the UAE capital for YTD 2018, at $49.78.

This month also provided some respite from a fairly challenging year for Abu Dhabi hotels, which have recorded five months of YOY profit decline so far in 2018, leaving YTD GOPPAR levels 5.5-percent lower than during the same period in 2017.

And whilst TRevPAR levels peaked for 2018 this month, at $289.95, the YOY decline in this measure was as a result of falling revenue across all departments including Rooms (down 3.0 percent), Food & Beverage (down 3.8 percent), Conference & Banqueting (down 8.1 per cent) and Leisure (down 9.4 percent), on a per-available-room basis.

However, cost savings, which included a 0.9-percentage-point drop in payroll, to 20.2 percent of total revenue, managed to offset the negative revenue performance and helped hotels in the UAE capital to record a YOY increase in profit.

Profit & Loss Key Performance Indicators – Abu Dhabi (in USD)

The growth in profit in Abu Dhabi this month was all the more impressive considering the 3.0-percent YOY drop in RevPAR to $170.55, which was as a result of a softening in rate across the entire market mix, but primarily the commercial sector, including the Residential Conference (down 12.3 percent) and Corporate (down 9.4 percent) segments.

In stark contrast to the performance of hotels in Abu Dhabi, properties in Amman recorded a 13.1-percent YOY decline in profit per room in November, in spite of a 0.2-percent increase in RevPAR.

In addition to the growth in rooms revenue being outpaced by declines in non-rooms revenues, hotels in Amman also suffered an increase in costs, which was led by a 3.1-percentage-point increase in overheads, which grew to 38.4 percent of total revenue.

The uplift in overheads was as a result of YOY increases in expenses in Admin. & General (up 14.9 percent), Sales and Marketing (up 13.8 percent) and utility costs, which grew by 9.8 percent to $12.90 on per-available-room basis.

The GOPPAR drop in November contributed to the 17.7-percent decline in profit per room for hotels in Amman for YTD 2018, equivalent to a profit conversion of 21.9 percent of total revenue.

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

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.