Profit per room at London hotels now more than 2.5 time their Provincial cousins
London hotels achieved profit levels 2.5 times higher than hotels in the Provinces during March, according to the latest HotStats survey of approximately 550 full-service hotels across the UK from TRI Hospitality Consulting.
At £65.31, Gross Operating Profit per Available Room (GOPPAR) at London hotels in March was only slightly below the rolling 12 month average for the capital at £67.78, but was significantly above the profit per room achieved in the Provinces, at £25.92.
Furthermore, at 46.9%, the profit conversion of hotels in the capital was considerably above those in the Provinces, at 29.6% of total revenue.
Although ancillary (food and beverage, meeting room hire, leisure etc) spends suffered an overall decline in March 2011, the four per cent growth in TrevPAR levels was driven by increases in average room rates across all sectors, including the corporate (+5.6%), conference (+12.9%) and leisure (6.9%) segment.
The 6.8% growth in average room rate for the month suggests that London is showing no signs of being negatively impacted by the economic situation in the wider UK, which during March included unemployment figures rising to its highest level since 1994, inflation rates creeping up to 4.4% and the Budget 2011 encouraging considerable belt tightening.
Whilst historically the first quarter is the most challenging period of trading throughout the year due to a reduction in the level of activity in both the commercial and leisure sectors, evident in the 2.2 percentage point decline in room occupancy levels in the period, hotels in London have successfully achieved year-on-year growth in both Total Revenue per Available Room (TrevPAR) (+2.5%) and GOPPAR (+1.6%) levels.
“Despite the strong performance of the capital during this period, London hoteliers will be glad to see the back of the first quarter of the year. Whilst hoteliers were fortunate not to have the challenges of the snow this year, profitability levels remained more than 20% below the rolling 12 month average. Moreover, whereas London hotels will typically achieve a profit conversion of approximately 48% of total revenue, in Q1 hotels in the capital were left languishing at approximately 43%,” said Jonathan Langston, managing director, TRI Hospitality Consulting.
Cost increases put Provincial profitability into negative territory
Whilst hotels in the Provinces enjoyed a third consecutive month of total revenue growth, underlying cost issues revealed further year-on-year declines in profitability levels, according to the latest HotStats survey of approximately 550 full-service hotels across the UK.
Q1 2011 marked the first year since 2007 that Provincial hoteliers achieved a first period increase (of 0.6%) in TrevPAR to £79.71 from £79.25 during the challenging first quarter.
However, in line with the first quarter performance in recent years, GOPPAR suffered a decline of 3.6%. Although this is an improvement on declines of 5.3% (Q1 2010) and 19.9% (Q1 2009), this is the first year in which high costs have resulted in such a swing from a positive to a negative position.
For the month, the achieved TrevPAR growth of 0.5% to £87.47 from £87.00 was quickly diminished by increases in cost levels in both payroll (0.9 percentage point increase to 32.3 per cent of total revenue) and total overheads (1.0 percentage point increase to 24.2 per cent of total revenue).
As a result of the increase in costs, year-on-year GOPPAR levels for March declined by 4% to £25.92 from £27.01.
Despite the decline in overall profitability levels, TRI’s latest HotStats survey suggests that Provincial hoteliers appear to be more effectively managing one of the major challenges of 2010, conference rates, with the average rate in this sector stabilising at £76.22.
However, consumers continue to seek discounts in other parts of the conference package and Provincial hoteliers have obliged by reducing ancillary spends and more specifically room hire charges. This has resulted in a decline in meeting room revenue per available room of 12.9% in March to £4.61 from £5.29 during the same period in 2010, which has subsequently impacted total revenue levels.
“A lack of business demand and fewer leisure travellers typically means the first quarter of the year is a challenge for Provincial hoteliers and the timing of the school holidays and the Easter break will mean that those challenges will remain for at least another month. Further consideration will also need to be given to the impact of the 0.5% increase in National Insurance contributions next month,” added Langston.
For an inside view of a local or regional market place in the hotel sector, bespoke HotStats reports are available.
Contact
Jonathan Langston, Managing Director
0207 892 2201
The Tri Consulting Website can be seen here