UNITED KINGDOM Hoteliers in London posted strong numbers during April, but the royal wedding contributed relatively little to the hotel industry’s performance, despite hopes that it would prove to be an economic boon.
Profitability levels in London soared in April, despite major declines in headline performance levels over the Easter holiday and the royal wedding weekend, according to a survey of approximately 550 full-service hotels across the UK by TRI Hospitality Consulting.
Despite the boost of an estimated 500,000 visitors to London to celebrate the marriage of Prince William and Kate Middleton, demand for full-service hotel accommodation during this period was not as strong as was widely anticipated. Occupancy levels dropped to approximately 60% on the day of the wedding, April 29, but the greatest margin of decline was suffered on Easter Monday, when year-on-year room occupancy levels dropped by approximately 26 percentage points to just 46%.
London’s 12.5% growth in profit per room to £57.01 in April may be therefore attributed to strong year-on-year performance levels at the beginning of the month, as well as a recovery from the declines in occupancy and ADR suffered in April 2010 as the volcanic ash cloud closed UK airspace for several days.
While the increases in volume and price contributed to a 10.3% increase in total RevPAR, the growth was also due to a 2% increase in F&B RevPAR. Profitability conversion at London hotels was once again boosted by a reduction in payroll costs, to 26.7% from 27.6% of total revenue.
“It was widely anticipated that the royal wedding would cause a significant boost to headline performance levels for London hoteliers in April,” says Jonathan Langston, managing director of TRI Hospitality Consulting. “However, whether it was due to high pricing in the full-service market or a higher-than-forecast proportion of day-trippers, it is clear that the expected demand did not materialize.”
Provincial hoteliers get stung despite April?s holiday buzz
The extraordinary string of bank holidays during April left hoteliers in the UK provinces nursing a 5.2% decline in gross operating profit per available room (GOPPAR). For the most part, provincial hoteliers rely heavily on corporate demand, and while they are accustomed to a typical period of low activity over Easter, the timing of the Easter weekend and the May Day weekend encouraged long breaks for the corporate sector, piling the pressure on profitability levels.
The decline in commercial activity in the provinces was clearly illustrated by the shift in the volume mix. As the proportion of the market mix attributed to the commercial sector declined by 2.3 percentage points to 38.9% of total demand, the proportion of demand attributed to the leisure sector grew by 2.6 percentage points, to 39.4%. While there was an increase in demand from leisure sources, it was at the expense of ADR, particularly in the leisure group segment, where the sector rate declined by 5.1% to £45.38.
Although the 5.2% decline in profit per room, to £21.22 from £22.39 during the same period in 2010, may be attributed to the abundance of bank holidays in April, this is the third year in a row that ADR has declined during April and the seventh month in a row that provincial hoteliers have suffered a drop in profitability levels.
That said, GOPPAR increases were achieved in typical leisure destinations such as Bath (2.8%), Brighton (55.3%) and Edinburgh (24.5%), but as bookings on foreign breaks in April doubled—buoyed by two successive four-day weekends—commercial demand was absent for as many as 11 days in a row. The impact of a drop in commercial activity was felt more acutely in business-led hotel markets such as Swindon (down 10.1%), Newcastle (down 11.3%) and Coventry (down 15.5%).
“A significant number of key provincial hotel markets rely heavily on commercial activity to drive demand for accommodation, and the timing of these bank holidays has only further exacerbated the tough trading conditions for provincial hoteliers,” Langston says. “Our hope would be for hotels in the provinces to have a strong operating period in May and June before the summer holidays begin in earnest.”