Market Report Middle East

Double-Digit Profit Dip in December Punctuates Down Year for Middle East & North Africa Hotels

MENA Chain Hotels Market Review - December 2018
Sunset in Abu Dhabi - Photo by David Rodrigo on Unsplash
Double-Digit Profit Dip in December Punctuates Down Year for Middle East & North Africa Hotels

HotStats

Profit per room at hotels in the Middle East & North Africa fell by 10.6 percent year-over-year in December and contributed to a 6.0-percent decline for full-year 2018, as revenues declined and costs spiraled, according to the latest data tracking full-service hotels from HotStats.

Positive profit growth was only achieved in four months of the year, and, further, there have only been six months of profit growth in the last two years.

The fourth quarter was particularly challenging, with three consecutive months of large profit decline—in October (down 8.1 percent), November (down 8.8 percent) and now December.

Revenues declined across all departments, including Rooms (down 1.5 percent), Food & Beverage (down 7.1 percent) and Conference & Banqueting (down 5.2 percent), on a per-available-room basis.

As a result, YOY TRevPAR fell by 3.4 percent to $223.58.

Rising costs presented challenges, as payroll levels as a percentage of total revenue increased by 1.4 percentage points to 24.9 percent. In addition, overheads as a percentage of total revenue increased by 2.0 percentage points to 24.9 percent.

Total profit margin was down 3.3 percent YOY in December and down 1.4 percent for the full year.

Profit & Loss Key Performance Indicators – Middle East & Africa (in USD)

December 2018 v. December 2017

RevPAR: -1.5% to $126.80

TRevPAR: -3.4% to $223.58

Payroll % Rev.: +1.4 pts to 24.9%

GOPPAR: -10.6% to $86.47

“Whilst hotels in the Middle East & North Africa have successfully managed to maintain profit margins in recent years by slashing costs in line with the decline in revenue, 2018 was the first time in which profit conversion has fallen, suggesting that costs are just about as low as they can go,” said Michael Grove, Director of Intelligence and Customer Solutions, EMEA, at HotStats. “The challenge for hotel owners and operators in 2019 will be to continue to maintain profit conversion if revenue levels continue to slide.”

In contrast to the performance across the region, Doha was a bright spot. The Qatari capital has recorded YOY GOPPAR growth in five of the last seven months, including a 22.0-percent YOY increase in December to $90.30.

Still, it was not enough to secure an increase in profit for the year, as GOPPAR fell by 0.9 percent in 2018. At $80.68, profit per room in 2018 was almost $63 below the same period in 2015 at $143.37.

Hotels in Doha recorded an uplift in revenue across all departments in December, driven by an 8.1-percent increase in RevPAR to $101.16, as YOY room occupancy soared by 7.7 percentage points to 66.4 percent.

As a result of the movement in revenues, TRevPAR increased by 2.3 percent in December to $282.09. In addition to the growth in revenues, hotels recorded a drop in payroll levels as a percentage of total revenue, which fell by 3.9 percentage points this month to 25.9 percent.

Profit & Loss Key Performance Indicators – Doha (in USD)

December 2018 v. December 2017

RevPAR: +8.1% to $101.16

TRevPAR: +2.3% to $282.09

Payroll % Rev.: -3.9 pts. to 25.9%

GOPPAR: +22.0% to $90.30

The decline at hotels in Jeddah was more reflective of the performance of the wider region, as profit per room was off by 61.2 percent in December, falling to just $37.80, which is approximately one quarter of the GOPPAR recorded at hotels in the Saudi Arabian city for full-year 2018 at $135.56.

The decline in profit was in spite of a 3.5-percentage-point increase in room occupancy, which grew to 54.4 percent, but hindered by a 9.0-percent decline in achieved average room rate.

Further declines in non-rooms revenue contributed to the 10.5-percent decrease in TRevPAR in December.

Increasing costs were led by a considerable increase in payroll as a percentage of total revenue, which grew by 6.9 percentage points to 40.8 percent.

The GOPPAR drop in December contributed to the 4.8-percent decline in profit per room for hotels in Jeddah in 2018. However, profit conversion remained strong at 45.8 percent of total revenue for the year.

Profit & Loss Key Performance Indicators – Jeddah (in USD)

December 2018 v. December 2017

RevPAR: -2.8% to $107.41

TRevPAR: -10.5% to $184.79

Payroll % Rev.: +6.9 pts to 40.8%

GOPPAR: -61.2% to $37.80

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