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Hotel profits hit by rising costs but Cardiff sees occupancy boost

28 February 2018 by
Hotel profits hit by rising costs but Cardiff sees occupancy boost

Hotels in the UK faced a challenging start to the year as escalating costs wiped out revenue growth in January.

Rising costs, particularly in payroll, led to a 3.9% year-on-year decline in profit per room last month, according to the latest poll of full-service hotels from HotStats.

Growth in revenue per available room (revpar) in January was up just 0.6% to £66.28, and was a result of a 0.8% increase to £102.58 in achieved average room rate, which offset the 0.2% drop in room occupancy to 64.6%.

Hotels in the UK successfully recorded increases in non-rooms revenues, including food and beverage (1.1%) and conference and banqueting (6%), which contributed to the 0.8% increase in total revpar (trevpar) to £103.86.

However, hotels struggled to turn a profit in any department, illustrated by the 0.5% decline in profit per room recorded in the rooms department to £44.86.

Increases in rooms expenses (6.8%) and rooms payroll (3.1%) wiped out the increase in rooms revenue and led to the January profit drop.

Pablo Alonso, chief executive of HotStats, said: "January was the sixth consecutive month in which hotels in the UK have recorded a year-on-year decline in room occupancy. I'm not sure it's time to start panicking just yet as the drop has been fairly minor. However, with a record number of additions to supply anticipated in London and the regions in 2018, margins really need to be monitored.

"Moreover, escalating payroll costs should be a key concern for hotel owners, operators and investors, with further increases in the National Living Wage set for April 2018 and net migration levels falling to their lowest level since records began."

Occupancy boost for Cardiff
In contrast, hotels in Cardiff recorded an increase in occupancy of 2.6% to 67.1%, but at the expense of a 1.9% decline in achieved average room rate to £69.00, the lowest rate recorded at hotels in Cardiff since January 2016.

And despite recording a reasonable level of growth in revpar, profit per room at hotels in Cardiff also succumbed to rising costs in January.

In addition to the drop in achieved average room rate, non-rooms revenues at hotels in the Welsh capital fell and contributed to trevpar growth being tempered to an increase of just 1.1% to £73.57.

As a result of mounting costs, which were led by a 0.9% increase in payroll to 41.2% of total revenue, profit per room at hotels in Cardiff fell by 1.6% year-on-year in January to just £9.02, equivalent to a profit conversion of only 12.3% of total revenue.

Plummeting profit in Newcastle
Similar dynamics were responsible for profit per room plummeting at hotels in Newcastle in January.

Challenged by the addition of almost 1,000 rooms to the market over the last three years, room occupancy at hotels polled in Newcastle in January dropped by 1.6% year-on-year to just 60.7%, the lowest occupancy recorded in the market since January 2016.

The drop in room occupancy was sufficient to cancel out the 0.9% increase in achieved average room rate to £67.94, and as a result revpar dropped by 1.7% to £41.26.

Further declines in non-rooms revenue meant trevpar at hotels in Newcastle dropped by 2.3% year-on-year to £66.47, which, again, was the lowest monthly level recorded in this measure since January 2016.

The falling revenue levels at Newcastle hotels were further exacerbated by increasing costs, which included a 0.1% increase in payroll to 39.4% of total revenue.

Occupancy and revpar fall at UK hotels in December >>

Brexit boost for the UK hotel sector >>

Profit growth at UK hotels strong despite election uncertainty in June >>

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