Top-line growth fails to deliver profit for UK hotels

02 April 2019 by
Top-line growth fails to deliver profit for UK hotels

The UK hotel industry is off to a rough 2019, with a slight increase in revpar in February not enough to push hotels into the black as the UK suffered a second consecutive month of profit decline.

That is according to data from HotStats. Total gross operating profit (goppar) for the month settled in at £35.44, a 4.4% year-over-year decline. This continued the downward trend in this measure since the start of 2019.

Despite the 0.5% increase in revenue per available room (revpar), non-rooms revenues dropped by 0.4% in the month to 36.2% of total revenue. The drop in ancillary revenues included declines in food and beverage (down 0.7%), conference and banqueting (down 1.3%) and leisure (down 0.5%), on a per-available-room basis.

Still, hotels managed to eke out a small 0.2% gain in year-on-year total revenue per available room (trevpar), which has now increased in each of the past five months.

But the increase was wiped out by rising costs, which included a 0.5-percentage-point increase in payroll as a percentage of total revenue to 32.8%.

The most major increase in overheads was in utility costs, which increased by 8.7% year-on-year to £5.98 per available room, equivalent to 4.8% of total revenue. This was closely followed by an 8.2% year-on-year increase in sales and marketing expenses.

As a result of the movement in revenue and costs, profit contribution at hotels in the UK was recorded at 28.7% of total revenue, which is well below the average in the rolling 12 months to February 2019, at 38.2%.

Cardiff
In contrast to the performance of the total UK hotel market, February was a positive month for properties in Cardiff, as they scored an 8.9% year-on-year increase in profit per room. A key demand generator was Wales hosting England in the 2019 Six Nations Rugby tournament.

The growth in profit was led by an 8.7% increase in achieved average room rate to £84.37, as hoteliers in the Welsh capital gambled on driving rate at the expense of room occupancy, which fell by 3.3 percentage points in the month.

Trevpar increased by 6% year-on-year, with beverage revenue comprising 9.3% of revenue. This is broadly in line with trevpar recorded in the rolling 12 months to February 2019, at £101. The positive mood was helped further by a 1.5-percentage-point decrease in payroll as a percentage of total revenue.

Edinburgh
Edinburgh, however, was a different story. Despite Murrayfield Stadium hosting Six Nations rugby matches between Scotland and Italy and Scotland and Ireland, year-on-year goppar in the Scottish capital dropped by 27.7% in the month, representing a third consecutive month of profit decline in the city.

Revpar fell by 10.3% year-on-year, with average room rate declining 9.2% year-on-year. Further declines in non-rooms revenues contributed to the 6.6% decrease in trevpar to £102.57.

Revenue declines were further exacerbated by ballooning costs, which included a 2.1% increase in labour costs on a per-available-room basis, leading to a 3.2-percentage-point increase in payroll as a percentage of total revenue to 38%. Furthermore, year-on-year utility costs were up 21.2%, on a per-available-room basis.

Strong end to 2018 bolsters hotels' profit growth >>

Strong end to 2018 bolsters hotels' profit growth >>

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