Force Majeure Halts London Hoteliers Profitability Progress

Following five months of consecutive year-on-year profitability growth, international travel disruption caused by the Eyjafjallajoekull volcano ended London’s near perfect 2010 performance, according to the latest HotStats survey from TRI Hospitality Consulting. 

The 2.5% decline in Gross Operating Profit per Available Room (GOPPAR) was primarily led by a decline in Revenue per Available Room (RevPAR) in the capital for the first time since October 2009.

Despite average room rate maintaining its upward trend, increasing by 5.1% to £113.17 on the back of a 15% increase in the value of leisure and rack rated business, room occupancy levels fell by 4.2 percentage points to 76.1% during April. This represented the largest margin of room occupancy decline in the capital since January 2009, as the volume of incoming visitors was severely hampered by all UK airspace being closed for several days. 

“Performance levels in London have been exceptional since the beginning of the year and it was always going to take something out of this world to slow their progress. With some forecasters predicting a long term impact from this volcanic activity, London hoteliers could be subject to further disruption,” said Jonathan Langston, managing director, TRI Hospitality Consulting.

Uncertainty shrouds the Provinces 

Although the impact of airport closures in the UK was not as evident in the provincial hotel market as in London, it is clear that the uncertain economic situation impacted consumer confidence throughout the UK as the country prepared itself for a General Election.

In the wake of a challenging first quarter, room occupancy levels in the Provincial UK remained relatively stable at 67%. However, following an 11.2% decline in April 2009, average room rates fell further in 2010, by 1.6% to £66.23.

Despite the recovery in room occupancy levels in a number of provincial UK hotel markets which initially suffered during the early stages of the recession, pressure still remains on price. This is illustrated by declines in average room rates in Liverpool (-10.1%), Birmingham (-1.8%), Leeds (-2.7%) and Norwich (-4.2%) with the greatest pressure remaining in the corporate sector.

“Although provincial hoteliers are successfully increasing year-on-year room occupancy levels following the significant declines during the same period in 2009, market forces are dictating that rooms are being sold at a much lower price. As detailed in our January 2010 forecasts, going forward we anticipate the pressure on provincial hoteliers to increase as the new government introduces a more stringent policy on travel budgets,” added Langston. 

Heathrow hoteliers benefit from stranded travellers

It is estimated by BAA that during the disruption caused by the volcano ash cloud in April, Heathrow handled approximately 1.2 million less passengers than anticipated, equivalent to a shortfall of 21%. It is impossible to estimate the proportion of those passengers who had to make emergency arrangements at hotels in the Heathrow area, but hoteliers in the local market clearly benefited from the disruption with a 5.7 percentage point year-on-year increase in room occupancy levels to 75.1% in April, according to the latest HotStats survey.

Not surprisingly, in contrast to the decline in average rates across the Provincial UK, Heathrow hoteliers reaped the benefits of a captive audience with a 1.2% increase in average room rate to £70.85, which was primarily driven by a 7.1% increase in achieved rack rate to £103.37. 

The year-on-year decline in the number of passengers handled at other BAA operated airports attributed to the volcanic ash cloud were estimated to be 27% in Southampton, 22% in Glasgow and 26% in Edinburgh. Across the group, BAA estimates that the number of passengers restricted from using their airports was approximately 1.9 million during April 2010.   

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For an inside view of a local or regional market place in the hotel sector, bespoke HotStats reports are available. Terms and conditions apply.  To view a sample report visit: http://www.trihc.com/Home.aspx?pID=149-0Or from the TRI home page select Market knowledge and follow the path to Market reports.

TRI Hospitality Consulting provides a wide range of services to clients in the hotel sector. It has offices in London, Dubai and Madrid.

For more information contact:

Jonathan Langston, managing director 020 7892 2201

[email protected]

David Bailey, deputy managing director 020 7892 2202

[email protected]

Charles Scudamore, director 0207 892 2211

[email protected]