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Tough first quarter as hotels register profit decline and rising costs

29 April 2013 by
Tough first quarter as hotels register profit decline and rising costs

A tough first three months of the year for London hotels is highlighted by a 7.3% fall in gross operating, according to the latest HotStats UK Chain Hotels Market Review.

In the first quarter, revenue per available room (revpar) and total revenue per available room (trevpar) declined by 3.4% and 2.5%, respectively, compared to the same period in 2012.

Whilst demand levels have remained relatively robust, London hotels are attracting a higher proportion of lower yielding leisure and group tour business than higher-value corporate sales. This has been compounded by a drop in average room rates in all market sectors, with the exception of corporate bookings, which remained stagnant.

The gross operating profit per available room (goppar) for the period fell across three, four and five star full-service hotels, with the greatest percentage decline of -9% experienced in the four-star sector. The capital's five-star and three-star sectors experienced goppar declines of 8.7% and 7.8%, respectively.

March saw average room rates decline by 4.3%, revpar by 3.2% and goppar by 6.6%.

Jonathan Langston, managing director at TRI Hospitality Consulting, which puts together the HotStats survey, said: "The first quarter is typically the most challenging operating period for London hotels; however from a broader perspective the fact that demand levels remain robust despite London experiencing an increase in supply of over 11,000 bedrooms across all sectors since 2010 is more encouraging news.

Meanwhile the HotStats survey showed a decline in gross operating profit performance in the regions, despite an increase in revenue during March.

Last month saw revpar rise by 1.2% and trevpar by 0.9%, although goppar declined by 5.3% outside London. The rise in revpar performance was due to a 1.1 percentage point increase in occupancy, offsetting the slight decline of -0.4% in average room rate performance.

Unfortunately revenue increases were wiped out by increasing costs, with administrative and general expenses increasing by 5.4% on a per available room basis whilst utility costs increased by 12.5%. The increase in utility costs stemmed from the freezing weather experienced across the country which saw the second coldest ever March on record, according to the Met Office.

Trevpar performance in the first three months of 2013 increased by1.2%, while goppar declined by -4%.

Results across the UK varied widely during the first quarter, with positive gains achieved in the North West (3.7%), East Midlands (3.2%) and Scoland (6.8%). In contrast, the North East (-29.4%) and West Midlands (-12.5%) experienced significant declines.

"From a top-line revenue perspective, it is promising that demand levels and revenue performance continues to achieve incremental increases in the provinces," said Langston. "However, whenever there appears to be some positive news hoteliers have been faced with a variety of operating challenges. In March it was the adverse weather; prior to that an increase in departmental operating expenses and travel agency commissions as well as a number of other factors.

"Perhaps the better-than-expected GDP results in Q1 will provide a more positive outlook for provincial hoteliers in the remainder of the year." said Langston.

The HotStats survey is collated from624 hotels, primarily in the three and four-star sectors, with an average of 177 bedrooms.

Poor start to 2013 for London hotels >>

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