Dubai hotels more affordable with decline in room rates

Hotels in Gulf Cooperation Council countries have experienced a downturn in performance and overall profitability that correlates with a decline in oil prices, according to data and analysis from STR.

Through the first half of 2016, the GCC hotel industry reported a 10.3 per cent year-over-year decrease in the key hotel performance indicator, revenue per available room (RevPAR). According to Statista, the average price of Opec crude oil in 2016 is down 27 per cent to $36.13 from the average price per barrel in 2015.

STR analysts noted that RevPAR and gross operating profit per available room (Goppar), the key hotel profitability indicator, trended similarly to the price of crude oil during the past decade.

According to Statista, the price of Opec crude oil averaged $96.29 per barrel in 2014 but plummeted 48.6 per cent to an average price of $49.49 in 2015. Over the same time period, corporate business in GCC hotels suffered with year-over-year declines in room revenue (-3.1 per cent), food & beverage (-3.8 per cent) and other operated departments (-5.8 per cent), according to STR’s 2015 Global Profitability Review.  Overall, total revenue for GCC hotels was down 3 per cent in 2015.

“Since many of the key cities in the Middle East rely heavily on corporate travel for events and conventions, it is not strange to see overall profitability declines partially as a result of the drop in oil price,” said Philip Wooller, STR’s area director for the Middle East and Africa. “When you couple that with strong supply growth in the majority of these markets, the downward trend is amplified. At the market level, however, Dubai still maintains one of the highest Goppar levels in the world.”

Dubai hotels more affordable with decline in room rates

Profit conversion at hotels in Dubai fell to just six  per cent of total revenue in June as the combination of Ramadan and the start of the peak holiday period contributed to declining demand levels, according to the latest data from HotStats.

June is typically a quieter month for hotels in Dubai due to the stifling temperatures in the city and a trend for expatriates and locals alike to seek cooler climes, in addition to a high proportion of the population observing Ramadan.

However, the volume of demand in June has been in constant decline in recent years, with room occupancy falling from 79.3 per cent in 2013, to 76.8 per cent in 2014, 67.4 per cent in 2015 and now 51.2 per cent in 2016.

In addition to the 16.3 percentage point year-on-year decline in occupancy this month, a 9.2 per cent drop in achieved average room rate contributed to a 31.1 per cent decrease in RevPAR (Revenue per Available Room) to $88.30 from $128.14 during the same period in 2015.

As TrevPAR (Total Revenue per Available Room) dropped to its lowest level since July 2014 ($186.68), the ability of Dubai hoteliers to carry out further cost cutting was limited, and as a result payroll levels for the month were up by 7.8 percentage points to 43.4 per cent of total revenue.

As year-on-year profit per room plummeted by 74.8 per cent this month, Goppar at hotels in Dubai was recorded at just $11.77, the lowest level since July 2014 (-$5.96).

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