A unique report by HotStats, which polled the performance of hotels across key European hotel markets overthe last ten years,revealed that in a number of locations, profit levels have not grown since 2007.
The hotel markets which have faced the biggest challenges over the last ten years are those which were at the top of their cycle as the global financial crisis hit in 2008, such as Vienna and Prague.
For hotels in Prague, the impact on top line performance of the global economic downturn and untimely additions to stock, coupled with a rising cost base, meant that hotels in the Czech capital recorded a profit per room of €51.85 in 2016, whichwas 16.1% below 2007 levels (€61.78).
The research highlighted that the biggest pressure on profit comes from Payroll, which ranges from as low as 23% of total revenue in Prague, to as high as 46% in Paris and revealed that hotels across Europe face severe challenges in containing their cost base.
In addition to the problems around payroll, there continues to be an inescapable trend towards the rising cost of demand, as the proportion of roomnights derived from high commission Online Travel Agents increases at pace.
This was particularly noteworthy in Berlin, where Rooms Cost of Sales (a HotStats measure of Travel Agent’s Commissions, Reservation Fees, GDS Fees, Third Party Fees and Internet Booking Fees) has increased by 320% in the period from 2009 to 2016, compared to a RevPAR increase of 36.6% during the same period. As a result, profit conversion in the rooms department at hotels in Berlin has gone backwards over the last ten years.
However, some markets in Europe have thrived over the last ten years, with the largest margin of growth in profit per room recorded in Dublin, at 218% which was on the back of a 60% increase in TrevPAR in the period from 2009 to 2016. But there was room for further improvement with the average hotel in the sample having forgone €340,000 of non-rooms revenue compared with levels achieved in 2009.
Pablo Alonso, Hotstats’ CEOsaid of the results “There is a particular challenge for hotel owners and operators alike who seek ways to enhance the value of the properties they own or manage. With further compression in yields unlikely across key European hotel markets, it is essential that valueis driven by profit growth.”
He added “Clear potential exists in focusing on non-rooms revenue, which in turn can enhance bottom line growth.There is also ample opportunity to deliver accretive, cumulative and significant gains by fully understanding the cost landscape and implementing operational benchmarking techniques and work towards best in class performance.”