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UK hotels report first increase in profit for the year

27 July 2018 by
UK hotels report first increase in profit for the year

Hotels in the UK recorded a 3% increase in profit per room in June; the first monthly year-on-year growth since the beginning of 2018.

This was thanks to an uplift in revenue which outpaced the ongoing increase in costs, according to the latest worldwide poll of full-service hotels from HotStats.

June was not only the first time that hotels in the UK recorded an increase in total gross operating profit per available room (goppar), but at £67.82, profit per room in June hit a peak for the year and was well above the year-to-date average of £46.83.

The growth in profit was fuelled by an increase across all revenue departments, including rooms (3.2%), food and beverage (3.2%), conference and banqueting (5.2%) and leisure (4.3%) on a per available room basis.

As a result of the movement in revenues, total revenue per available room (trevpar) at hotels in the UK increased by 3.1% year-on-year to £158.90. This also represented a high for the year and was 20% above the year-to-date average of £132.23.

Despite the strong revenue performance however, costs continue to escalate, illustrated by the 0.2-percentage point increase in payroll for the month to 25.8% of total revenue.

The growth in rooms revenue at hotels was driven by an increase in room occupancy (1.5 percentage points) to 84.2%, as well as a 1.4% increase in achieved average room rate to £125.44.

While the achieved rate in the leisure sector faltered in June, illustrated by the year-on-year decline in rate in the individual leisure (-0.4%) and group leisure (-3.2%) segments, growth was driven by the commercial segments, with an increase in the corporate (2.2%) and residential conference (2%) segments.

The growth in volume and price contributed to a 3.2% year-on-year increase in revenue per available room (revpar) for the month to £105.59, which was also a peak for 2018 and almost 25% above the year-to-date figure of £85.49.

Pablo Alonso, chief executive of HotStats, said: "June is typically a strong month for hotels in the UK due to a peak in a range of demand segments. The growth this month provides some respite from the profit decline suffered since the beginning of 2018, which will be welcome for owners and operators."

Cardiff on top
Cardiff was one of the top performing markets in June, with goppar increasing by 5.4% year-on-year to £52.75, a peak in monthly profit performance for Cardiff hotels in recent years, despite a mixed revenue performance.

Although hotels in the Welsh capital recorded a 10% year-on-year increase in revpar, declines were recorded across all other revenue departments, including food and beverage (-13.9%) and conference and banqueting (-27.9%).

Due to the movement in revenue, year-on-year trevpar growth at hotels in Cardiff was recorded at just 2.8% to £132.64. Nevertheless, this represented a monthly peak in performance on recent years, ahead of the most recent high recorded in June 2017 at £129.06.

While hotels in Cardiff recorded a 0.2-percentage point decline in room occupancy in June, which remained punchy at 89.4%, this was more than offset by the 10.2% year-on-year increase in achieved average room rate to £103.96.

Rate growth was driven by increases in the leisure segments, which included a 24.6% increase in the individual leisure segment to £119.41, which was by far the strongest rate recorded in the city in June.

"Top line performance at hotels in Cardiff was driven by a range of events, including a high-profile stop by the Volvo Ocean Race… which only stops in 12 key global cities and this is the first time the race has visited the UK in more than a decade. With the race staying in the city for more than two weeks, the benefit to the local economy was significant," added Alonso.

In addition to the growth in revenue, hotels in Cardiff successfully recorded a 1.3-percentage point saving in payroll, which fell to 25.1% of total revenue.

Strong revenue performance and costs savings meant hotels in Cardiff recorded a profit conversion of 39.8% of total revenue, and the growth contributed to the 2.2% year-on-year increase in profit per room for year-to-date 2018 to £32.34.

Challenging market hits Edinburgh
While hotels in the Scottish capital did not fare so well in June, growth in profit per room was recorded at 1.2% this month to £89.34.

This was only the second time in 2018 that hotels in Edinburgh have recorded a year-on-year increase in profit per room and the challenges faced by hotels in the city this year are reflected in the decline in profit per room for year-to-date 2018, which has fallen by 5% to £45.57.

The 1.9% year-on-year increase in trevpar at hotels in Edinburgh was primarily due to a 2.6% increase in rooms revenue, as food and beverage revenue fell by 1.9%.

Profit conversion remained punchy at 47.9% of total revenue, suggesting that hoteliers are effectively managing costs.

Hotels continuing to face the challenge of rising costs >>

Heatwave fails to warm hotel profits >>

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

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