Market Report Middle East

Middle East & North Africa Hotels Challenged by Supply, Economic Concerns

MENA Chain Hotels Market Review - January 2019
Sunset in Abu Dhabi - Photo by David Rodrigo on Unsplash
Middle East & North Africa Hotels Challenged by Supply, Economic Concerns

HotStats

Hotel profit plummeted in the Middle East & North Africa in January, as oversupply and struggling oil prices took a toll, sending GOPPAR to a 13.9-percent year-on-year decrease, according to the latest data tracking full-service hotels from HotStats.

The decrease is part of a continued story for the region, which saw GOPPAR decline 6 percent YOY in 2018; it marked the fifth consecutive month of YOY decline in this measure at hotels in the region.

The drop in profit was led by a 7.5-percent YOY decrease in RevPAR and a 2.9-percent drop in non-rooms revenues, which fell to $81.27, equivalent to 41.0 percent of total revenue.

Although hotels in the region were able to maintain room occupancy levels in the month, at 69.5 percent, achieved average room rate fell further in January, dropping by 7.5 percent YOY to $116.96.

Falling ancillary revenues included declines in Food & Beverage (down 5.5 percent) and Leisure (down 6.5 percent). One silver lining was a 0.3-percent uplift in Conference & Banqueting revenue, on a per-available-room basis.

As a result of the revenue movement across all departments, TRevPAR fell by 5.7 percent to $198.23. Whilst this was 1.1-percent above the TRevPAR recorded at hotels in the region in the rolling 12 months to January 2019, at $195.99, it was almost $25 below this measure in January 2016, at $222.82, illustrating the widening gulf between historic and current performance levels.

Declining total revenue was exacerbated by rising costs, including a 1.7-percentage-point increase in payroll levels as a percentage of total revenue to 27.3 percent, as well as a 1.8-percentage-point increase in overheads as a percentage of total revenue to 25.2 percent.

Profit margin was recorded at 38.5 percent in the month.

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

January 2019 v. January 2018

RevPAR: -7.5% to $116.96

TRevPAR: -5.7% to $198.23

Payroll: +1.7 pts. to 27.3%

GOPPAR: -13.9% to $76.28

“We are now almost five years down the road from when the oil crisis began in the Middle East and there has been little respite from the resultant decline in performance for hotel owners and operators in the region,” said Michael Grove, Director of Hotel Intelligence and Customer Solutions, EMEA, at HotStats. “With the oil market likely to be the dominant economic driver once again in 2019, the sharp decline in price towards the end of 2018 will undoubtedly be a cause for concern for regional hoteliers.”

For hotels in Dubai, the YOY decrease in profit per room in January represented the seventh consecutive month in which GOPPAR has dropped in the UAE’s most populous city.

The 13.9-percent decline in profit came despite the city hosting the 21st edition of the Intersec, Security, Safety & Fire Protection conference, which attracted close to 35,000 delegates with 1,202 exhibitors from 54 countries.

Hotels suffered significant declines in top-line revenue, which included a 2.2-percentage-point drop in room occupancy to 85.2 percent, as well as a 9.4-percent decrease in achieved average room rate, which fell to $248.48. It resulted in an 11.6-percent drop in RevPAR.

Non-rooms revenue fell to $132.20, equivalent to 38.5 percent of total revenue, and contributed to an 8.2-percent decline in TRevPAR.

The plummeting revenue levels were further exacerbated by rising costs, which included a 1.0-percentage-point increase in payroll levels as a percentage of total revenue to 23.3 percent.

In line with the regional market, profit conversion at hotels in Dubai is under pressure. Having been recorded at 48.6 percent of total revenue in January 2016, it fell back to 44.5 percent in the month.

“The oversaturation of the Dubai hotel market is no more clearly illustrated than in months like this, when an additional 35,000 people in the city fail to spur an increase in top- and bottom-line performance,” said Grove. “Against a backdrop of challenging economic conditions, profit decline is likely to continue at hotels in Dubai for some months to come.”

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

January 2019 v January 2018

RevPAR: -11.6% to $211.45

TRevPAR: -8.2% to $343.65

Payroll: +1.0 pts. to 23.3%

GOPPAR: -13.9% to $152.96

One bright spot in the region was Alexandria, where profit per room soared by 40.3 percent YOY in January to $38.23. The city continued to benefit from the recovery in the wider Egypt economy.

Growth in profit was fuelled by increases across all revenue centres, which contributed to the 27.3 percent increase in TRevPAR to $96.63.

This was the 31st consecutive month of profit growth for hotels in Alexandria and as a result of the robust increase this month, profit conversion in January was recorded at 39.6 percent of total revenue.

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

January 2019 v. January 2018

RevPAR: +26.4% to $59.04

TRevPAR: +27.3% to $96.63

Payroll: +0.1 pts. to 22.8%

GOPPAR: +40.3% to $38.23

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