Hard year for hotel groups

Last year was a tough one financially for hotels, with large drops in revenue per available room. Janet Harmer looks at the end-of-year results of four of the top groups.

The end-of-year results for four major hotel companies highlight just what a tough year 2009 was for the industry. Choice Hotels International and InterContinental Hotels Group (IHG) reported a decline in profits, while Marriott International and the Rezidor Hotel Group both made a loss.

However, there is a glimmer of optimism, with the decline in revenue per available room (revpar) slowing during the final quarter of 2009.

Marriott, which operates more than 3,300 hotels in 86 countries - including 56 in the UK - reported a loss of £220m in 2009, after generating income of £228m the previous year. While the company's worldwide revpar fell by 20% during the year, the decline slowed down to 12.2% in the final quarter.

"While the global business climate remained difficult, fourth quarter results exceeded our expectations," said JW Marriott Jnr, chairman and chief executive of Marriot International. "We grew our system, reduced total debt and continued to improve efficiencies worldwide.

"In the fourth quarter, leisure travellers responded to aggressive marketing campaigns and special offers and, even adjusting for easier year-over-year comparisons, business travel showed signs of improvement, particularly in international markets."

Rezidor also plunged into the red with a reported net loss of £24.5m in 2009, compared with a £22.6m profit in 2008. Revenue for the group - which operates 15 Radission Blu, 25 Park Inns and one Hotel Missioni in the UK - also fell by 13.7% to £588m.

SOME GROWTH

Like-for-like revpar decreased by 16.4% to £54.6m, with occupancy for the same period down from 66.4% to 62.1%. However, there were some signs of recovery in the final quarter when the revpar decline slowed to 10.6%, with the London market showing some growth.

"Occupancy reached 2008 levels in Q4, but rates continued to decrease," said president and chief executive of Rezidor, Kurt Ritter. "With limited visibility, it is still too early to assume this is the start of a recovery. We therefore continue to be prudent in preserving cash and controlling costs."

Rezidor, which operates 380 hotels across Europe, Middle East and Africa, opened a record number of 36 hotels in 2009, accounting for more than 7,000 rooms.

"Of these new rooms, 87% were managed or franchised, thereby further reducing long-term risk to the company," said Ritter, who added that the company intend to seek similar profitable growth opportunities in management contracts and in new, emerging markets.

While IHG, the world's largest hotel group by number of rooms, reported a fall in revenue from £1,210m in 2008 to £980m in 2009, it still succeeded in making a profit, although it was down, year-on-year, from £350m to £231m.

Revpar fell in 2009 by 14.7%, although the decline for the fourth quarter improved to 10.9%. The UK performed better than many other countries with a full year revpar decline of 9.8% and a 5.8% decline in the fourth quarter.

IHG, which owns, manages, leases or franchises some 4,400 hotels and more than 645,000 room in over 100 countries, also reported that it had opened a record 439 hotels (55,345 rooms) in 2009, as well as removing 187 hotels (28,517 rooms) from the company.

Commenting on the results, Andrew Cosslett, chief executive of IHG, said that 2009 had been a very challenging year for the industry. "The fourth quarter did show some improvement in trends and occupancy has now stabilised," he said. "Rate however remains under pressure and we expect trading to stay tough until business travellers return in greater numbers.

FRANCHISE CONTRACTS

"Through the year we took decisive action to reduce costs and improve efficiencies. Our managing performance, as a result, was good and our cash control enabled us to reduce our net debt from $1.3b (£828m) to $1.1b (£701m)."

One of the largest lodging franchisors in the world, Choice Hotels International reported earnings of £104.5m for the year 2009, a fall from £130m during the previous year. Franchising revenues declined £29.1m or 15% to £162.5m in 2009, compared to £191.5m in 2008, while revpar fell 14.4% last year, compared to the previous year.

The number of new hotel franchise contracts for the group behind the Comfort, Quality, Clarion and Sleep Inn brands also fell by 47% from 698 in 2008 to 369 in 2009.

"Despite operating in the midst of an incredibly difficult environment, which has resulted in industry wide revpar declines, the company has remained focused on returning value to our shareholders," said Stephen Joyce, president and chief executive of Choice Hotels.

"During 2009, we returned more than $100m to our shareholders through a combination of share repurchasers and dividends at a time when many other companies have reduced or eliminated their dividend and share purchase programmes."

Choice Hotels currently franchises about 6,000 hotels worldwide, representing more than 485,000 rooms.