Market Report Middle East

Profit Conversion at Dubai Hotels Hits Low As Summer Begins

MENA Chain Hotels Market Review - June 2016

Profit Conversion at Dubai Hotels Hits Low as Summer Begins

Profit conversion at hotels in Dubai fell to just 6.0% of total revenue in June as the combination of Ramadan and the start of the peak holiday period contributed to declining demand levels, according to the latest data from HotStats.

June is typically a quieter month for hotels in Dubai due to the stifling temperatures in the city and a trend for expatriates and locals alike to seek cooler climes, in addition to a high proportion of the population observing Ramadan. However, the volume of demand in June has been in constant decline in recent years, with room occupancy falling from 79.3% in 2013, to 76.8% in 2014, 67.4% in 2015 and now 51.2% in 2016.

In addition to the 16.3 percentage point year-on-year decline in occupancy this month, a 9.2% drop in achieved average room rate contributed to a 31.1% decrease in RevPAR (Revenue per Available Room) to $88.30 from $128.14 during the same period in 2015.

As TrevPAR (Total Revenue per Available Room) dropped to its lowest level since July 2014 ($186.68) the ability of Dubai hoteliers to carry out further cost cutting was limited, and as a result payroll levels for the month were up by 7.8 percentage points to 43.4% of total revenue.

As year-on-year profit per room plummeted by 74.8% this month, GOPPAR (Gross Operating Profit per Available Room) at hotels in Dubai was recorded at just $11.77, the lowest level since July 2014 (-$5.96).

Kuwait Hotels Face Challenges Across All Revenue Departments in June

The volume of demand at hotels in Kuwait is typically at its lowest level of the year in June and this month was no different with occupancy recorded at just 38.1%.

With achieved average room rate also falling to its lowest level since July 2014, to $212.52, as a result of a 6.8% year-on-year decline, RevPAR in the Kuwait hotel market dropped by 20.8%.

In addition to the drop in Rooms revenue, hotels in Kuwait also suffered a significant decline in ancillary revenue departments, including Food and Beverage (-31.1%), Conference and Banqueting (-27.2%), Leisure (- 27.6%) and Minor Operating Departments (-12.5%).

As a result, year-on-year TrevPAR at hotels in Kuwait declined by 25.9% in June, to $185.57 from $250.41 during the same period in 2015. Despite cost savings in both labour (-16.8%) and overheads (-8.2%) Kuwait hotels suffered a 35.2% decline in profit per room this month, to $55.71.

Riyadh Reliance on Commercial Sector Sees Profit Plummet in June

Hotels in Riyadh suffered a 46.0% year-on-year decline in profit per room in June as the volume and price of demand associated with the commercial sector fell away.

The commercial sector is a significant contributor to demand for hotels located in Saudi Arabia’s financial hub, but market data suggests that it is on a downward trend. For the average hotel in the sample (ie 286 bedrooms), the decline in commercial demand in June was equivalent to a year-on-year drop of approximately 870 accommodated roomnights.

In addition to the drop in volume, the commercial sector has suffered rate decline in both the corporate (-8.8%) and residential conference (-21.7%) segments in June, with decreases also recorded in associated ancillary departments, such as Food and Beverage (-1.8%) and Conference and Banqueting (-23.3%).

As payroll levels increased by 6.4 percentage points in the month of June, to 33.3% of total revenue, profit conversion for Riyadh hotels slipped to 26.9% of total revenue, from 39.4% during the same period in 2015. 

Graph - MENA Chain Hotels Market Review - June 2016

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