March gives mixed performance in Europe: TRI

While six of the European cities polled successfully achieved an increase in TrevPAR, only three were able to convert this growth in total revenue into growth in profit per room during March, according to the latest HotStats survey by TRI Hospitality Consulting. 

A drop in TrevPAR was suffered with Amsterdam down 1.5%, Frankfurt, Germany, down 9.7%, Zurich down 0.9% and the freefalling Athens, Greece, down 17.5% this month.

For three of these four cities, the decline in TrevPAR was primarily as a result of a drop in RevPAR, but for hotels in Amsterdam, a positive rooms performance of 0.4% was cancelled out by declines in food and beverage revenue of 1.7%) and meeting room hire revenue of 31% per available room.

Unsurprisingly, due to the current instability in its economy, hotels in the Greek capital suffered declines in all headline performance measures during March. In addition to the 16.9% decline in RevPAR, which was primarily as a result of a 13.1% drop in achieved average room rate, an 11.3% increase in payroll, to 70.2% of total revenue, would suggest that labor costs in the Greek capital have not been modified to reflect declining demand levels. 

Rising payroll costs are clearly an issue for many of the hotel markets polled this month, with profit levels impacted by increases in Athens, Brussels, Frankfurt, Istanbul, Moscow and Zurich.

Although the 5.2 percentage point increase in payroll levels at hotels in Frankfurt, to 31.7% of total revenue, is somewhat unsettling, it is not surprising as the cyclical nature of major events at the Frankfurt am Main causes significant peaks and troughs in performance throughout the year.

This month, year-on-year headline performance levels at Frankfurt hotels plummeted as a result of the absence of the biennial ISH Renewable Energies exhibition, which in 2011 attracted more than 200,000 visitors to the city. While hoteliers in the German city can take heart from the fact that the ISH event will be back in 2013, the impact of this event not taking place in the city in 2012 was a 20.9% year-on-year decline in profitability to €38.82 (US$51.30) per available room.

Hotels in Prague recorded a 70.6% increase in profit per room in the first quarter of 2012 as the market continued its bold recovery following an extremely challenging period of operation in recent years.

The growth in profitability levels in the Czech capital were in part due to a 27% increase in GOPPAR during March, as hoteliers were able to successfully increase revenues across all departments, including rooms, up 13.7%, food and beverage, up 11.9% and meeting room hire, up 13.2% in revenue per available room.

Q1 2012 was the strongest period of operation for hotels in Prague for some time, with a 15% year-on-year increase in RevPAR, which was fuelled by a 5.7% increase in room occupancy and a 2.3% increase in achieved average room rate to €76.73 (US$101.40). 

“Although in percentage terms the increase in profit levels in Prague has outpaced the other European hotel markets polled this quarter, it is important to remember that the growth is from an extremely low base caused by the decline in performance levels during 2009 and 2010. This is no better illustrated than by the achieved RevPAR in Q1 2012 which remains below the ailing Athens hotel market,” said Jonathan Langston, managing director, TRI Hospitality Consulting. 

Prague attracted 5.2 million tourists in 2011, delivering a record breaking 13.2 million roomnights. The renewed confidence in the Czech capital enabled hoteliers to achieve strong profit per room growth in 2011 with a 13.7%, following challenging trading conditions in 2009 with a 35.8% decline and 2010 with a 9.1% decline when the economic crisis and oversupply forced hoteliers to slash rates to boost domestic and international tourism. 

Whilst this strategy now seems to be paying dividends, at 30.8% of total revenue the profit conversion of hotels in Prague remains well below a number of markets polled this month, including London at 47.1%, Amsterdam at 40.1% and Istanbul at 45.7%.

In addition, the decline in headline revenue levels in Prague has left profit per available room at €27.57 (US$36.43) in the Czech capital well below the top performing European cities polled this month, such as Zurich at €105.70 (US$139.68) and Moscow at €81.59 (US$107.82).