Market Report Middle East

MENA Chain Hotels Market Review - July 2018

GOPPAR at hotels in the Middle East & Africa dropped to a new low of $34.70 in July as temperatures in the region soared and demand levels lagged, according to the latest worldwide poll of full-service hotels from HotStats.
Sunset in Abu Dhabi - Photo by David Rodrigo on Unsplash
Summer Slump at Hotels in the Middle East & Africa a Drag on Profits

HotStats

GOPPAR at hotels in the Middle East & Africa dropped to a new low of $34.70 in July as temperatures in the region soared and demand levels lagged, according to the latest worldwide poll of full-service hotels from HotStats.

The challenges for hotels in the Middle East & Africa continued in July, as profit levels foundered to a record low.

This was the fourth month in a row in which year-on-year profit levels at hotels in the region have fallen, a disappointment following a relatively positive first quarter of 2018.

GOPPAR has now dropped by almost 30% in the last 36 months to $73.08 in the 12 months to July 2018, from $94.53 in the 12 months to July 2015.

As in June, hotels in the Middle East & Africa successfully recorded an increase in RevPAR, which grew by 1.6% this month to $86.55. However, this was dampened by falling non-rooms revenues, as well as rising costs, which led to the drop in GOPPAR.

Non-rooms revenues accounted for 42.5% of all revenues this month and despite recording a drop in food & beverage (-0.9%) and conference & banqueting (-6.3%) revenue on a per available room basis, TrevPAR at hotels in the Middle East & Africa increased by 0.5% to $150.46.

However, rising costs, which included a 0.6-percentage-point increase in payroll to 35.2% of total revenue, as well as a 0.6-percentage-point uplift in overheads to 34.4% of total revenue, cancelled out the growth in total revenue.

As a result of the movement in revenue and costs this month, profit conversion at hotels in the Middle East & Africa was recorded at just 23.1% of total revenue and fell to less than half of the year-to-date 2018 GOPPAR figure at $70.31.

Profit & Loss Key Performance Indicators – Middle East & Africa (in USD)

July 2018 v July 2017

RevPAR: +1.6% to $86.55

TrevPAR: +0.5% to $150.46

Payroll: +0.6 pts to 35.2%

GOPPAR: -2.2% to $34.70

Achieved average room rate remains a test for hotels in the region, falling by 2.6% this month to a new low of $138.03, which represented the eleventh consecutive month of year-on-year decline in this measure.

Although hotels in the Middle East & Africa successfully recorded a 1.0% increase in achieved rate in the group leisure segment this month, declines were recorded across all other segments, including Best Available Rate (-6.0%), corporate (-7.5%), residential conference (-0.4%) and individual leisure (-1.0%), suggesting this is a demand-wide issue.

The challenges in rate this month were in contrast to room occupancy, which increased by 2.5-percentage points to 62.7%, marking a sixth month of year-on-year volume growth so far in 2018.

“Whilst there have been some green shoots in top-line performance at hotels in the region in the last few months, much to the disappointment of owners and operators, this has not reached the bottom line,” said Pablo Alonso, CEO of HotStats.

“This is understandable as the drop in profit levels at hotels in the Middle East & Africa has been unrelenting for such an extended time period that at this stage it is hard for management to cut any more costs whilst maintaining services and standards.”

Hotels on the island of Mauritius shared a similar profit-and-loss fate as the wider Middle East & Africa region this month, suffering a 19.8% year-on-year decline in profit per room, in spite of recording a 3.9% increase in RevPAR.

Whilst achieved average room rate growth on the island shows no signs of slowing, having increased by 20.5% for year-to-date 2018 following the 10.7% increase in 2017, it’s a different story for room occupancy, which has fallen by 2.1-percentage points so far in 2018 following a bumper period of volume growth in 2017, when room occupancy levels increased by 7.4-percentage points year-on-year.

For the month, the RevPAR uplift was a result of a 9.1% year-on-year increase in achieved average room rate to $200.66, which offset the 3.6-percentage-point decline in room occupancy, which fell to 74.1%.

And despite a decline in non-rooms revenues, which included a drop in food & beverage (-6.0%), conference & banqueting (-10.0%) and leisure (-9.2%), TRevPAR for hotels in Mauritius increased by +0.7% in July to $261.06.

However, in line with the region, escalating costs, which included a 1.6-percentage point increase in payroll to 31.9% of total revenue, cancelled out the growth in TRevPAR and led to year-on-year GOPPAR levels dropping to $46.71 this month.

Despite the decline in July, profit per room at hotels in Mauritius has increased by 9.8% for year-to-date 2018 to $90.73 and continued the profit growth recorded in 2016 (+13.2%) and 2017 (+26.5%).

Profit & Loss Key Performance Indicators – Mauritius (in USD)

July 2018 v July 2017

RevPAR: +3.9% to $148.69

TrevPAR: +0.7% to $261.06

Payroll: +1.6 pts to 31.9%

GOPPAR: -19.8% to $46.71

“Whilst room occupancy levels have declined in 2018, the ongoing growth in visitor numbers and current moratorium on development continues to drive growth in profit performance for hotels in Mauritius,” added Alonso.

In contrast to the drop in profit at hotels across the region, properties in the leisure destination of Sharm El Sheikh recorded a positive month of GOPPAR growth in July, which contributed to the recovery in top- and bottom-line performance after the challenges of recent years.

Profit & Loss Key Performance Indicators – Sharm El Sheikh (in USD)

July 2018 v July 2017

RevPAR: +17.9% to $30.23

TrevPAR: +15.8% to $48.23

Payroll: -0.1 pts to 20.5%

GOPPAR: +29.8% to $13.78

Growth in the Egyptian resort was led by a 17.9% year-on-year increase in RevPAR this month, which hit $30.23 and was a recent high, driven by growth in both room occupancy (+2.8-percentage points) and achieved average room rate (+13.1%) to $43.32.

The growth in rooms revenue was supported by increases in non-rooms revenue, which contributed to the 15.8% year-on-year increase in TRevPAR to $48.23.

In addition to the uplift in revenues, the 0.1-percentage-point saving in payroll, to 20.5% of total revenue, helped hotels in Sharm El Sheikh record a +29.8% in profit per room, albeit to a rather low $13.78 per available room.

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