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Inverse RevPAR/GOPPAR Relationship Influences March UK Profit Slide

Beware the Ides of March? Maybe Shakespeare had UK’s hospitality industry in mind when he wrote the portentous line. That’s because profit performance at hotels in the region went from bad to worse in March, as GOPPAR fell for a third consecutive month, despite another successful year-on-year increase in RevPAR. It suggests a further widening of these two measures, according to the latest data tracking full-service hotels from HotStats.

Profit per room at hotels in the UK fell by 0.7 percent in March to £46.98, contributing to the 1.2-percent YOY decline in GOPPAR for Q1 2019 to £36.85.

This was in stark contrast to the 1.3-percent increase in RevPAR for the month, which contributed to the 1.7-percent increase in RevPAR for Q1 2019.

Non-rooms revenue grew 2.2-percent YOY to £48.38 per available room, which was equivalent to 36.3 percent of total revenue and included an increase in revenue in the Food & Beverage (up 3.0 percent) and Conference & Banqueting (up 5.2 percent) departments, on a per-available-room basis.

As a result, TRevPAR levels continued their upward trajectory in the month, recording a 1.6-percent increase to £133.35 and contributing to ongoing growth in this measure, which hit £145.11 in the rolling 12 months to March 2019. 

However, the primary cause of the widening between RevPAR and GOPPAR remains rising costs, which this month were led by a 0.4-percentage-point increase in payroll as a percentage of total revenue to 29.3 percent.

This month, significant YOY cost increases were also recorded in Property & Maintenance expenses (up 6.1 percent), Sales & Marketing expenses (up 3.8 percent) and utility costs (up 6.0 percent).

The growing disparity between top- and bottom-line hotel performance was further illustrated in profit conversion, which fell by 0.8 percentage points YOY.

Profit & Loss Key Performance Indicators – Total UK (in GBP
March 2019 v. March 2018
RevPAR: +1.3% to £84.97
TRevPAR: +1.6% to £133.35
Payroll %: +0.4 pts. to 29.3%
GOPPAR: -0.7% to £46.98

“The incongruity between gross revenue and operating profit shines a light on the ballooning expenses impacting hoteliers and the struggle to keep them at bay,” said Michael Grove, Director of Intelligence and Customer Solutions, EMEA, at HotStats. “Operators will need to find more clever ways to keep costs down in order to turn a profit.”

Hotels in Manchester were amongst those to struggle most in March, recording a 5.7-percent YOY decrease in profit per room for the month to £43.34, which was equivalent to a profit conversion of 36.1 percent of total revenue.

Hotels in the UK’s third largest city were able to save face on total revenue this month, due to a 4.7-percent increase in non-rooms revenue, which grew to £43.02.

However, the muted movement in total revenue was entirely wiped out by rising costs, which included a 0.7-percentage-point increase in payroll as a percentage of total revenue to 25.1 percent.

The movement in revenue and costs added to another month of woe for hotels in the city, which have achieved only two months of YOY growth in GOPPAR since March 2018. As a result, profit per room has fallen by 7.2 percent over the last year to £44.29 in the rolling 12 months to March 2019.

“Supply is challenging performance at hotels in Manchester with approximately 900 rooms added to the market in 2018 and a further 1,200 set to open in 2019,” said Grove. “Fortunately, the city has some exciting things to look forward to in 2019, which could boost performance, including a number of fixtures in the ICC Cricket World Cup and the biennial Manchester International Festival.”

Profit & Loss Key Performance Indicators – Manchester (in GBP)
March 2019 v. March 2018
RevPAR: -2.4% to £77.19
TRevPAR: +0.0% to £120.21
Payroll %: +0.7 pts. to 25.1%
GOPPAR: -5.7% to £43.34

Leeds had better results, with profit per room increasing by 8.1 percent YOY, as the feel-good factor continues to permeate throughout the city on the back of a construction boom, buoyed by the arrival of Channel 4 in 2020.

Bottom-line growth this month was driven by an increase in volume and price in the commercial segment, which included an uplift in rate in the Corporate (up 2.8 percent) and Residential Conference (up 2.3 percent) sectors.

The growth in the commercial segment contributed to the 5.4-percent increase in RevPAR, which was the fifth consecutive month of YOY RevPAR growth in the city. 

Growth in revenues, in addition to costs savings, led by a 0.6-percentage-point decrease in payroll as a percentage of total revenue, helped hotels in Leeds record a healthy profit conversion of 31.5 percent of total revenue in the month.

Profit & Loss Key Performance Indicators – Leeds (in GBP)
March 2019 v. March 2018
RevPAR: +5.4% to £60.86
TRevPAR: +5.4% to £106.48
Payroll %: -0.6 pts. to 29.5%
GOPPAR: +8.1% to £33.58

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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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