London Hotel Profits Plummet - But City Remains The Most Profitable Hotel Market In Europe

The HotelBenchmark Survey Annual Profitability Review - 2003, which tracks the performance of over 2,500 hotels across Europe, the Middle East and Asia, reveals that in 2002 London hotel profits declined by 12%. This compares with an average fall of 8% for Europe as a whole. The only cities in Europe to show a rise in hotel profitability were Cardiff (11%), Moscow (10%), Birmingham (2%) and Edinburgh (2%).

Marvin Rust, travel, tourism & leisure partner at Deloitte & Touche,
commented: "Everyone expected the hotel industry to experience a sharp, V-shaped recovery post 9/11 with performance at previous levels by mid last year. The report shows this was not the case, with global economic instability ensuring 2002 was actually a worse year for the industry.

"London hotels have suffered particularly from the falls in US business travellers to the city, with hoteliers forced to reduce room rates to maintain occupancy levels. That said, London remains the most profitable hotel market in Europe, with 46% of revenue converted to profit, reflecting the high room rates London hotels can command combined with cheaper labour costs."

Brussels' hotel industry fared particularly badly, partly due to declines in international visitors following the collapse of Belgium's national airline Sabena. Falls in occupancy contributed to the 26% drop in profitability. Hotels in Rome also suffered significantly (16% decline), as weak US and German economies deterred the visitors from these regions who usually dominate travel to Rome.

Cardiff's strong performance can be attributed to the continuing pull of the Millennium Stadium, with room rates increasing as recognition grows of the city as a sporting and commercial centre. Eastern Europe's hotel industry has also proved relatively robust, with Moscow, Prague and Budapest three of the five hotel markets most adept at converting revenues to profit. Prague suffered a mere 8% decline in profitability, despite the floods that afflicted the city. Eastern European hoteliers are capitalising on the region's increasing popularity for city break destinations and lower cost base, particularly payroll.

Julia Felton, executive director of the HotelBenchmark Survey at Deloitte & Touche, concluded, "With war and SARS having dealt further blows to the global hotel industry, hoteliers wills struggle to prevent further falls in profitability this year unless they find innovative ways to cut costs,
attract visitors and maintain room rates."


Note: *profitability measured as Income Before Fixed Charges per available room

Copies of the HotelBenchmark Survey Annual Profitability Review - 2003 are priced at £500 per copy and are available by e-mailing HotelBenchmark@deloitte.co.uk or telephoning +44 20 7007 3974.


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