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MENA chain hotels struggling to turn a profit

Cost Cuts Can’t Stop Rooms Profit Drop at Manama Hotels

Cost Cuts Can’t Stop Rooms Profit Drop at Manama Hotels

Profit per room in the Rooms Department at Manama hotels dropped by 10.3% this month, which was in spite of savings in both departmental Cost of Sales and Payroll, according to the latest data from HotStats.

Whilst hotels in the Bahrain capital managed to maintain room occupancy levels at approximately 50.7%, achieved average room rate fell by 9.8% year-on-year to $167.70, which contributed to a RevPAR (Revenue per Available Room) decline of 10.0% to $85.01 this month.

The greatest margin of cost saving was in Rooms Cost of Sales, the measure associated with the cost of third party travel agencies, which was reduced by 14.9% in October, to $4.57 per available room, equivalent to 5.4% of Rooms Revenue. Furthermore, hotels in Manama recorded a 6.5% saving in Rooms Payroll, to $10.68 per available room, which contributed to the 5.7% decrease in this measure in the ten months to October 2016.

However, as a result of RevPAR decline outpacing cost savings, Rooms profit per available room fell by 10.3% to a conversion of 74.5% of revenue this month from 74.8% in October 2015.

This trend was mirrored in the overall performance of Manama hotels in October as despite a 3.5% saving in payroll on a per available room basis, GOPPAR (Gross Operating Profit per Available Room) fell by 36.5%, to $30.21 per available room, equivalent to a conversion of 21.9% of total revenue.

Profit Conversion Continues to Slide at Riyadh Hotels

Profit conversion at Riyadh hotels has fallen to 40.7% of total revenue year-to-date 2016 compared to 46.4% during the same period in 2015, due to falling revenues and rising costs.

In addition to declining revenue in Rooms (-11.8%), as well as ancillary departments, such as Food & Beverage (-11.0%) and Conference & Banqueting (-9.8%), hotels in Riyadh have also suffered increases in costs per available room, including labour (+0.3%) and overheads (+3.0%).

Since starting its downturn in October 2015, falling revenue levels have contributed to an 11.9% Total Revenue decline in the 12 months to October 2016, to $215.79. Increasing costs have added to the woes of Riyadh hoteliers and profit per room has now fallen by 20.8% in the last 12 months to $92.11.

Sharm El Sheikh Hotels Now Struggling to Turn a Profit

Hotels in Sharm El Sheikh recorded a -$6.65 loss this month, as the Egyptian resort continues to suffer major declines in top line performance as a result of a massive occupancy drop.

Room occupancy at hotels in Sharm El Sheikh plummeted by 42.0 percentage points this month to just 28.5%, from 70.5% during the same period in 2015.

The greatest margin of volume decline was in the leisure segment, with the drop equivalent to a year-on-year reduction of approximately 2,680 accommodated leisure roomnights for the average hotel in Sharm El Sheikh for the month of October alone, which was in addition to a 2.1% decline in rate in this segment.

In addition to the drop in volume, achieved average room rate at hotels in Sharm El Sheik dropped by 11.5% to $45.62, contributing to the 64.3% RevPAR decline this month, to $12.99.

Despite fighting hard to maintain profit by reducing costs, illustrated by the 30.0% saving in payroll costs on a per available room basis this month, as a result of plummeting revenue levels, payroll as a proportion of revenue was up by 22.3 percentage points to 46.2% of total revenue.

On a positive note, flights to the Egyptian resort from Germany and the UK are reported to be reopening almost one year after the terror attacks took place. This will be essential to recoup the 99.9% decline in profit recorded at Sharm El Sheikh hotels in the 12 months to October 2016 to just $0.01 per available room.