London Experiences Profit Decline Despite an Increase in Revenue Performance During February 2013

UK Chain Hotels Market Review - February 2013

TRI Hospitality Consulting Hotels in London experienced profit decline in February for the second month in a row despite an increase in revenue performance, according to the latest HotStats survey.

Demand levels increased as occupancy rose by 1.4 percentage points to 75.9%, albeit at the expense of average room rate (-1.8%). As a result, RevPAR (Revenue per Available Room) remained flat. Encouragingly, TRevPAR (Total Revenue per Available Room) increased by 0.8%, underpinned by an increase in non-rooms departmental revenue performance (+2.6%) when compared with February 2012 performance.

An increase in the volume of leisure demand, both individual leisure and group tour segments, enhanced occupancy performance, although average sector rate performance in both these market sectors declined by 3.4% and 6%, respectively.

The increase in the volume of demand is a reflection on the significant pick-up in international arrivals in February. London Heathrow Airport experienced traffic flow of 4.85 million passengers, the highest ever achieved at the airport for February, with a 29.8% increase in passenger traffic from China, 4.1% from India and 3.1% from Russia.

The marginal increase in revenue performance was not enough to temper a greater rise in operating costs as GOPPAR (Gross Operating Profit per Available Room) declined by 2.7%. Whilst the majority of operating costs remained broadly similar when compared to February 2012 performance, rooms department profit conversion declined by 0.7 percentage points from 75.5% to 74.8% of rooms revenue. This was due to a significant increase in rooms department direct expenses (ie the cost associated with the sale including agent commission and servicing of the bedrooms), up from 11.1% of rooms revenue to 12.2% of rooms revenue.

Whilst gross operating profit performance declined in February, the increase in TRevPAR is encouraging, particularly when considering January 2013 performance which experienced a 3.1% decrease in TRevPAR, and 9.2% decline in GOPPAR.

“After a disappointing January, February 2013 results are a lot more encouraging. Post-Olympic Games it will be difficult to define what a successful 2013 is, given that we have witnessed an unprecedented increase in bedroom supply in the capital over the past two years, and the market will not have the benefit of a one-off event being held in London. All eyes will be on the key trading period between May and November, when the volume and value of corporate and leisure demand increases significantly, to understand how trading performance will fair this year,” said David Bailey, deputy managing director at TRI Hospitality Consulting.

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TRI Hospitality Consulting provides a wide range of services to clients in the hotel sector. It has offices in London, Dubai and Madrid.

For more information contact:

Jonathan Langston, managing director 020 7892 2201

David Bailey, deputy managing director 020 7892 2202

Charles Scudamore, director 0207 892 2211

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