EUROPE Consistent growth throughout the year has allowed London hoteliers to significantly exceed the headline performance levels of other Europe markets, according to the latest HotStats survey by TRI Hospitality Consulting.
While city markets such as Brussels, Barcelona and Vienna remain heavily reliant on individual market sectors, such as government and conference demand, London has benefited from its strong demand from a range of sectors, which have subsequently enabled consistent growth in the last 12 months. As a result, 4- and 5-star hotels in London are currently achieving a gross operating profit per available room (GOPPAR) of €135.82, a figure close to 70% higher than the profitability level in the second highest-achieving Europe city, Amsterdam.
In addition, although the majority of Europe city markets have experienced a greater level of profitability growth than London in the 11 months to November, the UK capital is the only city with a year-to-date GOPPAR of more than €100, due to its rapid recovery from the impact of the recession, which began in earnest one year ago.
In addition to the strong revenue performance, London hoteliers have successfully maintained a lean workforce throughout the year so far, with payroll costs accounting for just 23.1% of total revenue. Payroll costs elsewhere in Europe are significantly above this—Paris (38.9%), Madrid (40%) and Rome (40.6%) in particular. As a result, year-to-date profit conversion at London hotels is approximately 50% of total revenue, which compares to a profitability conversion of approximately 32% in Paris, 29% in Madrid and 25% in Rome.
“Although other city markets are beginning to build their business back up to pre-recession levels, hoteliers in London have been there for some time. The UK capital benefits from a strong business mix driving revenues and astute management controlling costs and, at present, is clearly the most profitable hotel market in Europe,” says David Bailey, deputy managing director of TRI Hospitality Consulting.
High costs wipe out revenue gains in Paris
Despite achieving a year-on-year growth in total RevPAR of 5.6%, profitability levels in the France capital declined by more than 2% this month due to high costs, according to TRI data. Paris was the only market in this month’s Europe city sample to suffer from a decline in profitability, which dropped by 2.3% to €55.29 from €56.61 in 2009 and is representative of the mixed performance of the market throughout 2010.
Although profitability in Paris grew by some margin during February, March, May, September and October, the city has been subject to significant declines in profitability during the remainder of the year.
Despite successfully achieving a 14% increase in GOPPAR in the 11 months to November year over year, Paris remains some way behind the high-water mark of 2007. At a GOPPAR of €97.98, profitability levels at Paris hotels during the 11 months to November 2007 were driven by a RevPAR of €177.13, which at the time exceeded RevPAR in London by 19%. However, during the same period in 2010, London not only leads Europe, but at a RevPAR of €149.85 it is approximately 4% above the achieved RevPAR in Paris.
The high costs at Paris hotels are almost entirely related to payroll, which this month increased by 2.1 percentage points to account for 42.9% of total revenue. Historically, payroll levels have remained static in Paris, exemplified by a cost of 38.2% in the 11 months to November 2006, which is broadly in line with the year-to-date payroll levels in the France capital, at 38.9%, but the high costs significantly curtails the profit potential of Paris properties.
“Profit conversion has always been a challenge for Parisian hoteliers due to les trente cinq heures employment law, which prevents hotel staff from working more than 35 hours per week, necessitating that a hotel employs a larger workforce than comparable properties in other European cities,” Bailey says. “That said, Paris has the third highest GOPPAR in the European market sample and will undoubtedly recover to pre-recession levels sooner rather than later.”