Heatwave fails to warm hotel profits

31 May 2018 by
Heatwave fails to warm hotel profits

Profit growth at hotels in the UK failed to match the soaring temperatures in April.

Ongoing cost increases meant year-on-year growth in total revenue was completely wiped out and led to a -0.9% decline in total gross operating profit per available room (goppar), according to HotStats.

Hotels in the UK recorded a 0.6% year-on-year increase in total revenue per available room (trevpar) in April, which grew to £134.12, as the country basked in record temperatures.

However, the marginal revenue increase was not sufficient to offset the uplift in costs, which included a 0.4% increase in payroll to 29.6% of total revenue, as well as a 0.1% increase in overheads, which grew to 22.8% of total revenue.

Because 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% 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 revenue per available room (revpar) to £87.59.

One city which bucked profit decline in April was Brighton, where top-line growth was driven by an increase in demand from the commercial segments rather than leisure. The growth in volume was mainly due to the IATEFL Conference, which attracted more than 3,000 attendees from more than 100 countries.

Revpar at hotels in Brighton increased by 3.6% in April to £87.57 and was driven by a 4.1% 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.

While hotels in Brighton suffered a 0.2% increase in payroll to 25.9% of total revenue, it was far outweighed by the growth in top-line performance, which contributed to the 6.7% year-on-year increase in profit per room in April to £53.03.

Hotels in Aberdeen have also seen a welcome recovery in performance since the beginning of the year, with goppar growth recorded at 4% for the year-to-date; although profit per room remains low at just £10.76.

Hotels were able to record a 34% year-on-year increase in goppar, albeit to a lowly £12.74, on the back of a 10.5% increase in trevpar.

While the recovery in rooms revenue at hotels in Aberdeen has primarily been in volume, an increase was recorded in both room occupancy (6.3%) to 69%, and achieved average room rate (1.5%) to £60.85, which fuelled the 3.3% increase in revpar to £41.98.

The growth in revpar was supplemented by encouraging increases in non-rooms revenue, including food and beverage (+9.4%) and conference and banqueting (+36.8%) on a per available room basis.

Long cold winter freezes profit per room at UK hotels >>

Hotels see profit per room fall 5.1% in February >>

Hotel profits hit by rising costs but Cardiff sees occupancy boost >>

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