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Hotel Profits in the UK make hospitality leaders frustrated

Hotel Profit in the UK makes hospitality leaders frustrated

What is the reason behind the dilemma of running hotels in the United Kingdom? As reported on eTurboNews, the profits at UK hotels are the worst since  2016.

Revenue growth hasn’t been an issue for UK hoteliers this year. It’s driving profit that has them frustrated.

In a tale that is becoming all too common for the region, RevPAR at UK hotels was up in November, but profit against the same time last year was negative, according to data from HotStats. RevPAR grew slightly 0.3% YOY, while GOPPAR was down 1.8% YOY, illustrating the sometimes incongruous relationship between revenue and profit.

Yearly numbers note the trend: RevPAR is up 1.9% YTD, while GOPPAR is down 0.9%. Moreover, while 2019 has seen eight months of YOY TRevPAR increases, it’s also seen eight months of YOY GOPPAR declines.

Growing revenue has not been a problem for UK hotels this year (though revenue gains have narrowed toward the end of the year), but flow-through has evidenced by the expense creep that is having a pernicious bottom-line impact. Total labor costs on a per-available-room basis were up 2.3% YOY in November, while Property & Maintenance expenses saw a 5.1% YOY jump. Year-to-date, labour costs are up 3.4% while total overhead costs are up 2.3%.

Profit margin was down 0.6 percentage points in November to 37.5%.

Profit & Loss Performance Indicators – Total UK (in GBP)

KPI November 2019 v. November 2018
RevPAR +0.3% to £96.95
TRevPAR -0.3% to £153.54
Payroll +2.3% to £43.14
GOPPAR -1.8% to £57.65

The divergent revenue and profit picture across the totality of the UK held true in November in Birmingham, where both RevPAR and TRevPAR were up YOY, 3.6% and 1.1%, respectively, against a resulting YOY decrease in GOPPAR of 1.5%.

Profit was dragged down by a 5.8% YOY jump in total overhead costs, though which was blunted by a 5.0% overall drop in total hotel labour costs, a number that is down 1.6% YTD. Meanwhile, undistributed expenses saw increases across the board, including Admin. & General (up 8.6% YOY), P&M (up 7.3% YOY) and Sales & Marketing (up 13.4% YOY).

Profit & Loss Performance Indicators – Birmingham (in GBP)

KPI November 2019 v. November 2018
RevPAR +3.6% to £78.83
TRevPAR +1.1% to £120.68
Payroll -5.0% to £26.99
GOPPAR -1.5% to £51.62

London hotels checked in with similar results. RevPAR in the month was up 0.7 percent YOY on a 2.6% YOY increase in average room rate. Occupancy was down 1.5 percentage points to 82.3%. Total revenue was down 0.4% YOY, as total F&B RevPAR decreased 2.4% YOY. The drop in TRevPAR helped to explain the 2.4% decrease in GOPPAR, which was exacerbated by a 3.5% jump in labor costs on a PAR basis (up 5.3% YTD) and a 0.9% increase in total overheads. Utility expenses did come down 1.4% YOY in November.

For year-to-date, hotels in London have recorded a 2.6% increase in TRevPAR and a 1.0% increase in GOPPAR, signs of a still strong, if not more restrained in a growth market. The profit margin for the month of November was recorded at 44.7%, a 1.0 percentage point drop from the same time last year.

Profit & Loss Performance Indicators – London (in GBP)

KPI November 2019 v. November 2018
RevPAR +0.7% to £153.51
TRevPAR -0.4% to £223.30
Payroll +3.5% to £55.44
GOPPAR -2.4% to £99.92

Source: Hotstats 

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About the author

Juergen T Steinmetz

Juergen Thomas Steinmetz has continuously worked in the travel and tourism industry since he was a teenager in Germany (1977).
He founded eTurboNews in 1999 as the first online newsletter for the global travel tourism industry.