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December blues take the shine of 2011 profits for London hotels

Despite a difficult end to the year, London hoteliers recorded a second consecutive year of profitability growth, according to the latest HotStats survey.

The 4.7% increase in profit per room in the capital in 2011 was primarily due to a 6.1% increase in Revenue per Available Room (RevPAR), which was led by a 7% increase in the achieved average room rate for London hotels to £131.03 from £122.45 during the same period in 2010.

“Despite a challenging economic backdrop, London hotels have again outperformed expectations by showing profit growth in 2011. While the profit growth was more moderate than in 2010, it shows that hotels can buck the economic trends,” said Jonathan Langston, managing director of TRI Hospitality Consulting who surveyed 550 full-service hotels across the UK.

The 13.9% increase in profitability levels achieved in 2010 was always going to be a hard act to follow, but London hoteliers have managed to exceed expectations, primarily due to a strong period of operation during the second quarter of the year.

However, the annual increase for hotels in the capital was tainted by the 9.2% decline in profit per room in the city in December, which represented the third consecutive month of year-on-year profit decline for London hoteliers in 2011 and was the greatest monthly year-on-year drop in this measure for hotels in the capital since August 2009.

“Following a strong start to the year, London hotels limped to the finish line with a 4.6% decline in profitability recorded in the fourth quarter of 2011, said Langston. “And while industry commentators will continue to speculate about the forecasted performance for London hotels
during 2012, it is increasingly evident that the loss of demand due to postponed and cancelled business and regular visitors to the city choosing an alternative destination, will be offset by the considerable demand created by major events in the capital throughout the year, including the Queen’s Jubilee, the Farnborough Air Show, and of course the Olympics,”

While growth in both occupancy and average room rate contributed to a 1.5% increase in RevPAR, overall profit per room for Provincial hoteliers declined by 3.2% during 2011.

“The hangover from ‘The Big Freeze’ in December 2010 and the fresh snowfall in February 2011 meant that Provincial hoteliers failed to get started. And with the timing of the Royal Wedding and the Easter break there was little chance for them to create any sort of momentum,” said Langston.

As a result of a 0.7 percentage point increase in room occupancy, to 69.6%, and a 0.6% increase in achieved average room rate, Provincial hoteliers were once again able to achieve an increase in RevPAR levels in 2011. But for the second consecutive year, the growth in achieved average room rate was primarily due to increases in the Best Available Rate (+2.8%), leisure (+0.2%) and group (+2.6%) segments, with further declines suffered in the corporate (-0.3%) and conference (-1.7%) segments, highlighting the challenges which remain in the commercial sector.

“Despite the overall decline in headline performance levels across the Provinces, there continues to be some good news in primary locations such as Manchester, Brighton and Edinburgh, which all finished the year with positive results. While Provincial hoteliers will continue to face challenges, it is hoped that 2012 will provide the opportunity to recover some lost ground,” added Langston.