Sunday 14 July 2024

Profits plummet as MEA hotels return to business as usual

DUBAI, November 1, 2017

Following a summer of mixed fortunes, which included a welcome year-on-year increase in profit per room in August, hotels in the Middle East & Africa were back to business as usual in September as gross operating profit per available room (GOPPAR) levels sunk by 17.1 per cent year-on-year, according to the latest worldwide poll of full-service hotels from HotStats.

September typically marks a return to ‘normal’ trading conditions for hotels in the Middle East & Africa following the disruption during the summer, and with room occupancy levels (66.7 per cent) well ahead of the average for the preceding three-month ‘summer’ period at 57.5 per cent, they looked to be back on track.

However, a 10.8 per cent decline in achieved average room rate, to $158.67, wiped out the 1.0 percentage point increase in room occupancy and meant that hotels in the region suffered a 9.5 per cent decline in RevPAR. At $105.80, RevPAR at hotels in the Middle East & Africa was 5.5 per cent below the year-to-date average of $111.93.

The expected resurgence in performance at hotels in the region is characteristically led by the commercial sector. However, in addition to a drop in volume, a year-on-year decline in sector rates was recorded in the corporate (down 8.0 per cent) and residential conference (down 8.6 per cent) segments in September.

In addition to the drop in rooms revenue, hotels in the Middle East & Africa recorded a decline in non-rooms revenue, which included a decrease in food and beverage (down 1.7 per cent) and leisure (down 7.0 per cent) revenue on a per available room basis. As a result, TrevPAR in the region fell by 6.5 per cent year-on-year to $183.06.

In line with the growth in volume, a 2.4-percentage point increase in Payroll levels was recorded at hotels in the Middle East & Africa, to 29.9 per cent of total revenue. However, the rising costs further exacerbated the issue of falling revenues and as a result GOPPAR levels dropped to just $59.83.

“Despite oil prices hitting a two-year high in late September, a number of key economies across the Middle East & Africa continue to face challenges as they come to terms with the reduction in oil output due to OPEC-imposed cuts and many look to non-oil industries to stimulate growth.  

The current challenges in the oil industry have seen Saudi Arabia fall into recession in Q2 2017 with the Qatar economy also struggling. Alongside this, the political landscape in the region is facing major issues. The current challenges in the Middle East & Africa suggest the hotel market will continue to struggle in the short term,” said Pablo Alonso, CEO of HotStats.

Whilst Dubai is one of the few key economies in the Middle East & Africa which is much less reliant on the oil industry, the city is facing challenges of its own, as the dynamics of the hotel market shift towards the mid-market segment and the volume of supply in the city multiplies in preparation for Expo 2020.

In September, RevPAR at hotels in Dubai fell by 13.5 per cent year-on-year due to a decline in both room occupancy (down 4.2 percentage points) and achieved average room rate (down 8.7 per cent) to $162.50, with the decline contributing to the 2.7 per cent drop for year-to-date 2017.

It is surprising that the year-on-year decline has not been more severe, with more than 4,000 bedrooms added to the Dubai market in the year to Q3 2017, which have included the 414-bedroom Rixos JBR and the 238-bedroom DoubleTree by Hilton Business Bay, bringing the total number of rooms available to 82,200 bedrooms.

In addition to the drop in RevPAR, hotels in Dubai suffered declines in non-rooms revenue, which included a drop in food and beverage (down 4.4 per cent) and leisure (down 17.9 per cent) revenue on a per available room basis. The decline in revenues across all hotel departments resulted in hotels in Dubai recording a 9.9 per cent decline in TrevPAR, to $232.37.

Escalating costs contributed to the 27.6 per cent decline in GOPPAR at hotels in Dubai in September, which added to the 6.3 per cent drop in this measure for year-to-date 2017 and means Dubai hotels are on course for a third consecutive year of profit decline further to the drop in 2015 (down 20.5 per cent) and 2016 (down 10.1 per cent).

“The additions to stock in the Dubai hotel market, many of which are in the mid-market segment, are inevitably diluting top line performance which is having a knock-on effect on the rest of the profit and loss.

Despite this, construction projects in the city are continuing unabated and a further 4,100 bedrooms are due to enter the market in Q4 2017, with up to 40,600 rooms being developed in the next two and a half years in the lead up to Expo 2020,” added Pablo.

In contrast to the performance across many hotel markets in the region, hotels in Kuwait were able to record an increase in top and bottom line performance levels in September, but had to work hard to do so.

In September, hotels in Kuwait were able to offset a 7.1 per cent decline in achieved average room rate with a 5.2 percentage point increase in room occupancy levels, resulting in a 3.2 per cent increase in RevPAR, to $110.72. The year-on-year growth in Rooms Revenue contributed to the 2.3 per cent increase in TrevPAR.

As a result of the growth in volume, Payroll levels for hotels in Kuwait increased by 1.3 percentage points to 29.2 per cent of total revenue. Despite the increase in costs, GOPPAR increased by 0.3 per cent to $87.34 in September, equivalent to a profit conversion of 41.1 per cent of total revenue. - TradeArabia News Service

Tags: Africa | hotels | profits | decline | Middle | East |

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