It’s a challenging start to 2019 for mainland Europe’s hotels; UK revenues rise but profits slip

12 March, 2019

January is historically a slow month for hotels in Europe, but latest year-on-year comparisons from HotStats for full-service hotels doesn't paint a positive picture. Its analysis shows profit per room at hotels across mainland Europe fell by -9.1% year-over-year during the month - the largest margin of decline in this measure since Aug-2016 as revenues dropped and costs escalated.

The decline in January was led by a -1.3% drop in non-rooms revenues, which fell to EUR47.10, equivalent to 36.7% of total revenue. The falling ancillary revenues included declines in Food & Beverage (down 1.5%) and Conference & Banqueting (down 0.8%), on a per-available-room basis. Revenue per available room (RevPAR) was down 0.2% to EUR81.19 in spite of a 1.5% increase in achieved average room rate to EUR141.04. Occupancy fell by 0.9 percentage points.

Declines across revenue centres contributed to a 0.6% YOY decline in total revenue per available room (TRevPAR), which fell to EUR128.29. The data shows falling TRevPAR levels were further hit by rising costs, including a 1.3 percentage-point increase in payroll levels as a percentage of total revenue to 42.3%, as well as a 1.4 percentage-point increase in overheads as a percentage of total revenue to 29.0%.

As a result of the movement in revenue and costs, profit contribution at hotels in Europe was recorded at just 20.8% of total revenue, which is significantly below the average for the rolling 12 months to January 2019, at 36.2%.

It is easy to blame the month of the year for the poor performance, but "volume levels in the region appear to be stabilising, and even falling back, which will hit ancillary revenues, forcing hoteliers to work harder to generate a profit," warns Michael Grove, director of hotel intelligence and customer solutions, EMEA, at HotStats.

One of the markets to suffer the greatest decline in Jan-2019 was Lisbon, which recorded a 6.4% decrease in profit per room, which was the fifth month of year-on-year gross operating profit per available room (GOPPAR) decline in the Portuguese capital since Jul-2018. Prior to then, profit per room had soared by more than EUR20 in the preceding 24 months, to hit €53.55 in the rolling 12 months to July 2018, according to HotStats data. Its insight shows a slowing in top-line performance, particularly in room occupancy, has been to the detriment of the bottom line.

The Continental Europe general performance is echoed in the United Kingdom, says HotStats, where despite a 3.4% year-over-year increase in RevPAR in January, profit per room at UK hotels dropped by 2.6% due to rising costs. Growth in RevPAR was due to a slight increase in room occupancy, which grew by 0.2 percentage points to 64.8%, as well as a 3.1% increase in achieved average room rate, which continued its upward trajectory to hit GBP107.02 in the month.

Meanwhile, a 2.4% increase in TRevPAR was wiped out by increases in payroll as a percentage of total revenue, which grew by 0.3 percentage points to 35.4%, as well as growth in overheads as a percentage of total revenue, up 0.6 percentage points to 28.6%. As a result, profit per room dropped by 3.1% in the month, according to the HotStats data.

GOPPAR for the month was GBP26.10, which was less than half measure recorded in the rolling 12 months to Jan-2019 (GBP55.09). As a result of the movement in revenue and costs, profit contribution at hotels in the UK was recorded at just 24.2% of total revenue.

Mr Grove says hoteliers in London "need to be bottom-line focussed so that top-line results do not flatter to deceive," as hotels in the UK operate "with a constantly inflating cost base, further squeezing margins."