Oversaturation and economic woes among reasons for general worsening of Middle East & North African hotel performance

Hotel profit plummeted across the Middle East and North Africa in January, as oversupply and struggling oil prices took a toll, sending gross operating profit per available room (GOPPAR) to a -13.9% year-on-year (YOY) decrease, according to the latest data tracking full-service hotels from HotStats. The decrease is part of a continued story for the region, which saw GOPPAR decline 6% YOY in 2018; it marked the fifth consecutive month of YOY decline in this measure at hotels in the region.

The drop in profit was led by a -7.5% YOY decrease in revenue per available room (RevPAR) and a -2.9% drop in non-rooms revenues, which fell to USD81.27, equivalent to 41.0% of total revenue. Although hotels in the region were able to maintain room occupancy levels in the month, at 69.5%, achieved average room rate fell further during the month, dropping by -7.5% YOY to USD116.96.

The data shows falling ancillary revenues included declines in Food & Beverage (down -5.5%) and Leisure (down -6.5%). One silver lining was a 0.3% uplift in Conference & Banqueting revenue, on a per-available-room basis.

As a result of the revenue movement across all departments, total revenue per available room (TRevPAR) fell by -5.7% to USD198.23. This was 1.1% above the TRevPAR recorded at hotels in the region in the rolling 12 months to Jan-2019, at USD195.99, it was almost USD25 below this measure in Jan-2016, at USD222.82, illustrating the widening gulf between historic and current performance levels.

The data highlights that declining total revenue was exacerbated by rising costs, including a 1.7 percentage-point increase in payroll levels as a percentage of total revenue to 27.3%, as well as a 1.8 percentage-point increase in overheads as a percentage of total revenue to 25.2%. Profit margin was recorded at 38.5% in the month.

“With the oil market likely to be the dominant economic driver once again in 2019, the sharp decline in price towards the end of 2018 will undoubtedly be a cause for concern for regional hoteliers,” warns Michael Grove, director of hotel intelligence and customer solutions, EMEA, at HotStats.

For hotels in Dubai, the YOY decrease in profit per room in January represented the seventh consecutive month in which GOPPAR has dropped in the UAE’s most populous city. This -13.9% decline in profit came despite the city hosting the 21st edition of the Intersec, Security, Safety & Fire Protection conference, which attracted close to 35,000 delegates.

The data from HotStats shows hotels suffered significant declines in top-line revenue, which included a -2.2 percentage-point drop in room occupancy to 85.2%, as well as a -9.4% decrease in achieved average room rate, which fell to USD248.48. These resulted in an -11.6% drop in RevPAR.

Non-rooms revenue fell to USD132.20, equivalent to 38.5% of total revenue, and contributed to an -8.2% decline in TRevPAR. The plummeting revenue levels were further exacerbated by rising costs, according to the data, which included a 1.0 percentage-point increase in payroll levels as a percentage of total revenue to 23.3%.

“The oversaturation of the Dubai hotel market is no more clearly illustrated than in months like this, when an additional 35,000 people in the city fail to spur an increase in top- and bottom-line performance,” says Mr Grove. “Against a backdrop of challenging economic conditions, profit decline is likely to continue at hotels in Dubai for some months to come,” he warns.