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European hotel performance affected by financial crisis

A report produced quarterly by Deloitte, the business advisory firm, has found that year-to-September hotel performance fell slightly across Europe. Revenue per available room (revPAR) was down 1.5% to €76 driven by a 1.9% drop in occupancy. Average room is €112.

However, when looking at September figures alone, revPAR across Europe dipped 6.7%.

Commenting, Alex Kyriakidis, Global Managing Partner of Tourism, Hospitality & Leisure at Deloitte, said: “The world is now dealing with one of the most significant economic slowdowns in modern times and some European countries are being affected more than others. It’s clear that occupancy is dropping in most cities and from past experience, average room rates generally follow. There is no end in sight of this global recession. The hotel operators will be focusing on value for money more than ever before. There will be cannibalisation across the segments as consumers become much more budget conscious”

Diana Rogerova, Audit Partner Deloitte Czech republic adds: ”The global recession causes an overall slowdown of the hotel industry. Only hotels that are able to quickly respond to the current situation through optimisation and cost decreases, and search for alternative markets and sales channels will be able to grow and achieve positive economic results in the future”

Cities across the Euro zone have seen variations in revPAR performance. On average, occupancy has dipped into negative territory, while average room rates have risen slightly.

„Unfortunately, in our case, we noted a slight decrease, which more or less follows the statistics and the economic market news. This whole situation began to show in our results in August. Unfortunately at a time when foreign partners concluded business for the rest of the year, the USD saw a decrease and there was a high fluctuation of the EUR exchange rate, which is why the group business was postponed,“ said  Veronika Choteborska-General Manager Alchymist Grand Hotel and Spa. „Our company proceeded to implement saving measures and thanks to a small organisational structure, we quickly moved the selling and marketing forces to the surrounding markets and the internet market, where some of the largest growth for the following periods is expected and also the ROI is measured very positively. From the finance point of view, our company also faces an ADR YTD decrease of approximately 7 percent while retaining the same or even higher YTD occupancy of approximately 3 percent,“ added Choteborska.

Brussels bucked the trend. Occupancy increased 3.3% and average room rates 6.3%, resulting in a 9.8% jump in revPAR to €82.  Hotels in Brussels are considered less expensive compared to other capital cities in Europe and with limited new supply combined with stable corporate demand from European Commission conferences, hotel performance was strong.

Cyprus was another star performer, with the best revPAR growth in the Euro zone - up 11.8% to €88 so far this year.

On the flip side, hotel performance did not fare so well in Dublin. Occupancy fell 5.7% while average room rates decreased slightly resulting in a 6.2% revPAR decline.

Political stability in Israel and a growing interest in both religious travel and trips to the Dead Sea are boosting hotel business in this country.

Alex Kyriakidis said: “Hotel investment activity is down to approximately €5 billion in Europe from around €21 billion last year. However, developers who can raise cash are moving quickly into emerging markets, such as Turkey, Russia and the Commonwealth of Independent States.  Sovereign wealth funds and budget brands are also still making acquisitions. The current financial turmoil could present opportunities to cash-rich companies looking to invest in distressed hotels assets or companies.”

Looking ahead, Marvin Rust, Hospitality Managing Partner at Deloitte, said: “So far this year, hotels are proving they can cope with the economic downturn but the most dramatic events in the current financial crisis did not develop until after August and hotel performance is now suffering to a greater degree as belts tighten. RevPAR in Europe has dropped for four consecutive months and will remain in negative territory through the last quarter of this year.

“The recent downward trend in Euro zone business sentiment shows no sign of easing and it is not surprising that city breaks once considered affordable treats are now seen as a luxury. Hoteliers now face a difficult combination of disappearing consumer confidence, a squeeze on credit and a tightening of business spending, which is going to impact hotel performance to a greater degree into 2009.”

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www.deloitte.cz