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Revenue and Profit Fall at London Hotels in 2016
Hotels in London recorded a 2.6 % decline in profit per room in 2016, which was in spite of a 0.5 % increase in RevPAR, according to the latest data from HotStats.
Pipeline divides between budget and 4 / 5 star
The hollowing-out of the middle 2-3 star hotel market( once its mainstream) is starkly shown in the hotels development pipeline: nearly half hotels in development are budget, and nearly 40 % are four or five star.
The budget sector makes up 47 % of the UK’ s active pipeline as Premier Inn and Travelodge continue their aggressive expansion plans. The two brands account for nearly 70 % of budget bedrooms opened in 2016. Around 30 % of the active pipeline are four star hotels, 9 % are five-star properties and 10 % are apartments.
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“ Budget brands now account for 25 % of all hotel bedrooms in the UK, while the main casualties have been the two- and three-star properties. It’ s difficult to envisage this trend changing for the foreseeable future,” added Kett.
Whilst the addition of more 4,500 bedrooms of new supply into the capital undoubtedly diluted room occupancy performance, leading to a 0.4 % decline to 80.8 %, a 1.1 % increase in achieved average room rate to £ 154.26 helped to recoup the occupancy losses and drive growth in RevPAR( Revenue per Available Room) to £ 124.60 for 2016.
However, in a bid to achieve RevPAR growth for year-end 2016, hotels in London failed to maintain growth in other departments, suffering declines in ancillary revenues, including Food and Beverage(-0.9 %) and Conference and Banqueting(-2.7 %). As a result of the decline in ancillary revenues, the growth in RevPAR was entirely cancelled out and London hotels recorded a 0.6 % drop in Total Revenue in 2016.
OTAs take an increased share of hotel margin
Furthermore, a 36.8 % year-on-year increase in Rooms Costs of Sales for the month of December suggests that the proportion of demand booking via high-cost Online Travel Agents into London increased significantly as hoteliers fought to record an increase in RevPAR for year end 2016.
As a result of the rising costs across the operation, hotels in London recorded a profit decline in both the Rooms(-0.4 %) and Food and Beverage(-3.8 %) departments in 2016, further compounding the overall profit decline at hotels in the capital this year.