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Small RevPAR Gain No Match for Rise in Costs in MENA

It’s been tough sledding for hotels in the Middle East & North Africa. February marked the sixth consecutive month of year-over-year profit decline, in spite of a slight rise in RevPAR, according to the latest data tracking full-service hotels from HotStats.

GOPPAR for the month declined 4.3-percent YOY and two months into 2019, profit levels in the region are already 9.6 percent behind the same period in 2018.

The decline in profit was led by a 1.6-percent decrease in non-rooms revenue, which fell to $89.33, equivalent to 42.2 percent of total revenue.

However, it was not a blanket decline in ancillary revenues, as YOY growth of 1.1 percent was recorded in the food & beverage department, on a per-available-room basis.

And while RevPAR for the month was up 0.5 percent (growing to $122.39, 8.0-percent higher than the average for the rolling 12 months to February 2019), TRevPAR suffered a 0.4-percent decline.

Growth in rooms revenue was driven by a 2.6-percentage-point increase in occupancy to 73.9 percent, which was one of the highest room occupancies recorded in the region in the last 12 months. Average room rate was down 3.1 percent YOY.

Rising costs evaporated the marginal revenue growth. These were led by a 0.6-percent jump in total hotel labour costs and a 2.1-percent increase in total overheads, on a per-available-room basis.

Profit & Loss Key Performance Indicators – Middle East & North Africa (in USD)
February 2019 v. February 2018
RevPAR: +0.5% to $122.39
TRevPAR: -0.4% to $211.72
Payroll %: +0.3 pts. to 28.1%
GOPPAR: -4.3% to $79.45

Profit margin in the region was 37.5 percent of total revenue, marking the sixth consecutive month of profit conversion erosion.

“MENA hotels are unfortunately part of a broader trend where flagging revenue is being gobbled up by rising costs, leading to profit decay,” said Michael Grove, Director of Intelligence and Customer Solutions, EMEA, at HotStats. “In a slowing economic climate, hoteliers will need to figure out canny ways to cut down on expense in order to deliver on the bottom line.”

One bright spot in MENA: Sharm El Sheikh. Following the October 31, 2015, downing of a Russian passenger plane carrying 224 passengers from Sharm El Sheikh International Airport, a number of European countries and Russia suspended direct flights to the Egyptian resort town. More than three years later, a ban on flights from the UK still remains, but Russia has now lifted its own ban and tourism throughout the region is getting healthier. A report by the Arabian Travel Market noted that the yearly number of visitors to Egypt is expected to increase by 50 percent over the next three years.

Sharm El Sheikh hotels are slowly benefitting. A profit increase in February marks the sixth consecutive month of growth in this measure and, over the last 28 months, YOY GOPPAR has fallen only twice.

Profit & Loss Key Performance Indicators – Sharm El Sheikh (in USD)
February 2019 v. February 2018
RevPAR: +144.8% to $28.05
TRevPAR: +121.0% to $43.86
Payroll %: -18.0 pts. to 28.6%
GOPPAR: +472.3% to $9.83

Performance of hotels in Kuwait City was more reflective of the challenges across MENA, with profit per room falling by 41.3 percent YOY to $92.70, as the city continues to be hit by declining revenue levels and rising costs.

As a result of falling room occupancy (down 9.1 percentage points), achieved average room rate (down 14.6 percent) and non-rooms revenues (down 23.9 percent), TRevPAR decreased by more than $75 YOY to $229.27.

On the cost side, while hotel labour costs on a per-available-room basis were down 8.4 percent YOY, as a percentage of total revenue, they were up 5.4 percentage points, illustrating revenue corrosion.

Profit conversion was at 40.4 percent of total revenue, down 11.2 percentage points over the same time prior.

Profit & Loss Key Performance Indicators – Kuwait City (in USD)
February 2019 v. February 2018
RevPAR: -26.1% to $123.83
TRevPAR: -25.1% to $229.27
Payroll %: +5.4 pts. to 29.4%
GOPPAR: -41.3% to $92.70

 

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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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