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Falling corporate room rates squeeze profits in the regions

25 March 2010 by

Although the thaw in January's freezing weather brought some recovery to provincial hotels in February, pressure on average room rates continued to stymie growth in profitability, according to the latest HotStats report from Tri Hospitality Consulting.

Gross operating profit per available room (goppar) fell by 0.4% in the regions to £22.06 (2009:£22.15) - a marked improvement on the 18.9% slump reported in January.

Although occupancy in the regions rose by 2.7 percentage points (to 66.9%), average room rates slipped by 4.7% to £66.58, building on the 6.2% decline noted in February 2009.

Corporate rates have come under the greatest pressure, falling by 7% to £67.02 in February compared with a 4.1% decline in the same month of 2009. The cities hardest hit by this drop were Birmingham (where corporate rates slumped by 11.8%), Manchester (-9.4%) and Leeds (-7.5%).

"Despite the increase in room occupancy levels, the challenge for provincial hoteliers remains in securing high-yielding contracted businerss to bolster rooms revenue," said Jonathan Langston, managing director at TRI.

"It appears that business travel bookers are once again using the uncertainty of the economic climate to their advantage during rate negotiations as they drive prices further down."

The decline in corporate rates has also hit London hotels to a lesser extent.

The capital's hotels achieved double-digit growth in goppar for the third month in the row, raising profitability by 12.4% to £53.71 (2009: £47.77).

This growth stemmed from a 3.5 percentage point rise in occupancy (to 77.6%) and a 3.1% hike in average room rate to £114.14.

However, corporate rates declined by 2.2%, despite a 3.6% rise in demand from this sector. By contrast, conference rates increased by 6.5% despite a marginal (0/3%) rise in demand.

TRI HotStats: monthly UK hotel figures >>

PKF monthly hotel performance update >>

UK hotel revpar forecast to grow by 3% in 2010 >>

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