Heat Wave Fails To Warm Profit Levels At UK Hotels

Profit growth at hotels in the UK failed to match the soaring temperatures in April as the ongoing cost creep meant year-on-year growth in total revenue was completely wiped out and led to a -0.9% decline in GOPPAR, according to the latest worldwide poll of full-service hotels from HotStats.

Hotels in the UK recorded a 0.6% year-on-year increase in TrevPAR in April, which grew to £134.12, as the country basked in record temperatures, wiping out the memories of the endless winter.However, the marginal revenue increase was not sufficient to offset the uplift in costs, which this month included a 0.4-percentage point increase in Payroll to 29.6% of total revenue, as well as a 0.1 percentage point increase in Overheads, which grew to 22.8% of total revenue.As a result of the movement in revenue and costs, profit per room at hotels in the UK fell by -0.9% to £47.98. This represented a sixth consecutive month of year-on-year profit decline and contributed to the -3.7% decline in this measure for year-to-date 2018, to £39.31 per available room.In addition to escalating costs, one of the key challenges to performance at hotels so far in 2018 has been volume levels, which appear to be on the slide.

This was illustrated by the 0.9-percentage point year-on-year drop in room occupancy this month, to 77.8%, which completely wiped out the 0.8% increase in achieved average room rate, to £112.56, and contributed to the 0.3% drop in RevPAR, to £87.59.

Despite recording increases in rate in the commercial sector, which included an uplift in the Conference (+12.6%) and Corporate (+0.1%) segments, hotels in the UK were let down by rate declines in the Leisure (-4.2%) and Group Tours (-1.6%) segments, which was somewhat surprising considering the warm weather.

“Demand levels have softened since the beginning of 2018, which may be attributed to the poor weather, the slowing in the UK economy and, this month, the timing of Easter.

But it’s also clear that the increase in minimum wage and employer pension contributions have caused an increase in payroll levels. So, despite a rise in TrevPAR, payroll as a percentage of total revenue has grown and taken a bite out of profits,” said Pablo Alonso, CEO of HotStats..

One city which bucked the national trend of profit decline in April was Brighton. However, in line with the performance of the UK overall, top line growth for hotels in the south coast city was driven by an increase in demand from the commercial segments, rather than leisure.

The growth in volume this month was led by demand generated in the city by the 2018 edition of the IATEFL Conference, which attracted more than 3,000 attendees from more than 100 countries.

The conference fuelled an increase in volume from the commercial segment, which increased to 39.4% of total demand for the month, which is well above the contribution from the Residential Conference and Corporate sectors in the rolling 12 months to April 2018, at 34.9% of roomnights sold.

Despite the overall decline in achieved average room rate this month, which fell by 1.6% to £107.03, the volume of attendees to the annual IATEFL event supported an uplift in segment rate in the Residential Conference (+5.2%) and Corporate (+7.0%) sectors.

RevPAR at hotels in Brighton increased by 3.6% in April to £87.57 and was driven by a 4.1-percentage point increase in room occupancy, to 81.8%.

The uplift in Rooms Revenue was supported by increases in Non-Rooms Departments, which contributed to the 2.5% increase in TrevPAR in April, to £133.78.

“Although Brighton is traditionally a popular destination for leisure visitors, which has been boosted over the last 24 months by a Brexit-related uplift in domestic tourism, demand levels are also supported by the strong conference and convention offering, with significant capacity available at the Brighton Centre, as well as a number of the local hotels,” added Pablo.

The profit growth this month continued the positive performance for hotels in Brighton so far in 2018 and contributed to the 8.8% increase in GOPPAR for year-to-date 2018, to £31.28. The growth this year will be a welcome respite after the 2.2% drop in this measure in 2017.

 

Sign up to the CLH Newsletter!

Sign up to receive highlights of the latest industry news and more from CLH News, delivered directly to your inbox twice a week!