Market Report Middle East

Strong RevPAR Growth Wiped Out by High Costs at Amman Hotels

MENA Chain Hotels Market Review - July 2016

An 11.7% RevPAR increase at hotels in Amman was completely wiped out by high costs this month, resulting in a 4.3% decline in profit per room, according to the latest data from HotStats.

The year-on-year RevPAR (Revenue per Available Room) growth for July was primarily due to a 5.3 percentage point increase in occupancy. However, the data suggests Amman hoteliers sold a much higher proportion of bedrooms via online third party travel agents this month, illustrated by the 65.8% year-on-year increase in Rooms Cost of Sales, which in part, fuelled the occupancy growth.

Whilst the use of online travel agents by Amman hoteliers has evidently not been so prevalent for the remainder of the year, as an increase of just 13.3% has been recorded in this measure in 2016, the 22.0% increase in this cost over the last three years would suggest its use is becoming more commonplace.

Furthermore, as Amman hotels have suffered an 11.0% decline in RevPAR during this same period (ie the 36 months to July 2016), profit levels in the Rooms department have dropped by 14.1%, to $71.68 per available room in the 12 months to July 2016.

Despite achieving a 9.6% increase in profit per room in July, the Rooms department is now less profitable than ever with the conversion dropping by 1.6 percentage points to 79.8% of Rooms revenue, from 81.3% during the same period in 2015.

Manama Hotels Break Cycle of Decline in July

Hotels in Manama recorded a profit per room increase of 4.3% in July, which is the first sign of profit growth in the Bahrain capital since January 2016.

The year-on-year increase in GOPPAR (Gross Operating Profit per Available Room) was primarily fuelled by a 7.3% increase in RevPAR to $95.04, which was in spite of an 8.5% year-on-year decline in achieved average room rate. On a rolling 12-month basis, the average rate at Manama hotels has now fallen by 7.2% over the last ten months, to $187.27 in the 12 months to July 2016.

Prior to July, profit per room at Manama hotels for H1 2016 had fallen by 18.3% year-on-year to $52.38, equivalent to a year-to-date profit conversion of 33.1% compared to 36.7% in 2015.

The decline in profit was primarily due to an 8.7% drop in RevPAR, as well as declining ancillary revenues, including Food and Beverage (-12.4%) and Conference and Banqueting (-21.3%).

Massive Drop in Leisure Demand Crippling Sharm El Sheikh Hotels

Hotels in Sharm El Sheikh are struggling to remain profitable as leisure demand has all but abandoned the coastal city in the wake of terrorist related events in October 2015 and the hangover from the Arab Spring.

Whilst overall volume has been worst hit, with year-to-date 2016 occupancy recorded at just 32.1%, 30.2 percentage points behind the same period in 2015, the key challenges remain in the leisure segment where the proportion of total demand in this sector has dropped by 12.7 percentage points. For the average hotel in our sample (ie approximately 450 bedrooms) this is equivalent to a decline of approximately 15,400 accommodated roomnights in the first seven months of 2016.

Whilst there has been a 13.6% year-to-date uplift in the achieved rate in the leisure segment, to $46.26 from $40.73, the shortfall of volume from the leisure segment is equivalent to a $600,000 year-on-year decline in Rooms revenue for the average hotel in our sample.

Despite the 12.5% year-on-year decline in profit per room in July, profit conversion at Sharm El Sheikh hotels increased by 0.7 percentage points to 29.3% from 28.6% during the same period in 2015. The growth in July is in contrast to the year-to-date profit performance as year-on-year GOPPAR has plummeted by 107.6% to -$1.20 per available room. 

Graph - MENA Chain Hotels Market Review - July 2016

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