London’s hotel prices soaring

United States results also bright

London’s hotels are reporting a large jump in occupancy and revenue per available room this year.

The latest Deloitte Hotel Performance Update looks at how hotels have performed so far in 2010 and notes that, in local currency, London’s revenue per available room – known as revPAR – was upped by 12.2 per cent compared to the previous year. Its occupancy of 82.1 per cent was boosted, said analysts by events such as the Farnborough Air Show and summer travellers from Arab countries escaping the extreme heat in the Middle East.

More expensive

However, the stronger performance of sterling against dollars and euros, plus an imminent increase of VAT to 20 per cent from 4 January, 2011, will make the United Kingdom more expensive for visitors, warned the report, which generally struck a positive note.

“2010 is shaping up to be a much better year compared to last – especially for tourism. Arrivals are up and travel is proving to be a priority for many with consequent hotel performance benefits. However, it has certainly not been smooth sailing throughout the region with continued economic pressure apparent and which is still putting pressure on the hotel industry.

“Transaction volumes remain low and for those that are not restructuring their debt, securing capital for expansion remains difficult to say the least. In post recessionary Europe the good news will be mixed with the bad and while the industry gets used to this ‘new normal’, it looks like many are getting back to basics,” it read.

Biggest market increases were found in Germany, which reported a 19 per cent revPAR increase. Average room rates there are now CI$98.

The report concluded that Europe’s austerity measures of late will continue to threaten travel and hotel demand and revPAR will continue on a ‘muted but upward’ path.

States looking up

The American hotel industry is also looking brighter than anticipated, according to a report by Smith Travel Research.

Demand so far in 2010 has increased by 7.4 per cent compared to 2009. Originally, it had been expected to only rise by 1.8 per cent. On a 20-year average, that’s an increase of 1.2 per cent.

Supply has risen 2 per cent, which is higher than the previous forecast of 1.8 per cent. The 20-year average is 1.9 per cent.

Average daily rates have dropped by 0.1 per cent and now stand at US$97.92. This nonetheless is better than original forecasts for 2010, which were that the average daily rate would drop by 3.2 per cent. Over 20 years, this represents a 2.8 per cent increase for the industry. Revenue per available room jumped by 5.4 per cent, to $56.23, in contrast to the expected downturn by 3.2 per cent. The 20-year average is 2.1 per cent increase.

Occupancy was 57.3 per cent – a 5.3 per cent increase compared to the flat line predicted originally. However, that’s a 0.8 per cent fall on the 20-year average.

The researchers said that continued strong demand plus inevitable rate hikes would fuel further improvement in 2011.

It now expects supply to increase by 0.9 per cent, demand to go up by 2.5 per cent, occupancy to increase by 1.6 per cent and revPAR to increase by 5.5 per cent.

Cancellation income

One side-effect of the downturn in the economy was an increase in cancellation and attrition fees during 2009 for United States hotels. Whil

e room revenue declined by 19.5 per cent, attrition and cancellation income grew by 4.1 per cent, said a report from Colliers PKF Consulting,

This was driven by revenue collected at convention hotels and resorts, both of which recorded 12 per cent revenue growth in that area.

These penalty payments averaged 6.3 per cent of net operating income last year for the hotels studied, which was up from 3.8 per cent in 2008.

This, said the analysts, made a difference to the bottom line. What could have been a drop in net operating income of 38.9 per cent in 2008 to 2009 was mitigated to 37.2 per cent decline by penalty fees and attrition and cancellation revenue. Cancellation income reflects economic conditions, said the report.

“Emotionally, it is tough for hotel managers to enforce attrition and cancellation contract clauses. Sales managers have to balance the need for short-term income with the long-term relationships they have with meeting planners.

“During good times when lost room nights can be replaced, hotel management will waive the clauses in exchange for promises of future bookings. However, during industry recessions, operators have now seen the financial benefits of enforcement,” it read.

BIZstory

London’s hotels are attracting higher rates during 2010 than over the same period in 2009. – Photo: File
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