Happy Days Are Here Again

28th February 2007 (Last Updated February 28th, 2007 18:30)

The European hotel market saw a dramatic upturn in its fortunes in 2006. With strong performances across the continent, from a modernising Russia to a Germany boosted by World Cup fever, Deloitte’s Nina Bruun reports on the major changes.

Happy Days Are Here Again

Despite the current fascination with the Middle East and the surge in
tourists in and out of China, Europe is hanging on to the lion’s share of
the global tourism market. Diverse cultures, varied landscapes and a rich
history make this region the number one choice for travellers.

Its continuing popularity is good news for Europe’s hoteliers, who
achieved an 8.5% increase in revPAR in 2006. In US dollar terms, the Middle
East saw better growth, putting both regions level in terms of absolute revPAR
and average room rates.

” Europe is hanging on to the lion’s share of the global tourism market.”

Full year results from the HotelBenchmark™ Survey by Deloitte show
that 2006 was a good year for all regions, with Asia, Central and South
America, Europe and the Middle East all showing solid growth. Europe –
from Dublin to Moscow – achieved revPAR of €75, with average room
rates at €110.These figures, while not quite as impressive as those for in
the Middle East, still represent almost double the growth rate of 2005.

Business was brisk for several reasons. Economies across the region were in
good shape, European cities hosted a range of sporting and cultural events, the
corporate market was strong and the number of people taking advantage of
low-cost flights to visit other European countries continued to rise.
Investment in the hotel industry was also healthy and the combination of all
these factors meant 2006 ended more positively than 2005.

BIG TICKET ATTRACTIONS

Europe is a multicultural, multi-currency mix, but not every country follows
the same trends or growth pattern. The ten EU countries that joined in 2004
experienced much slower growth in 2006 than in 2005, and average room rates are
some €24 behind the other EU countries.

Also, outstanding performances in key gateway cities such as London, Geneva
and Moscow led to differences in occupancy levels and average room rates among
those outside and inside the Eurozone. However, overall the hotel business
across Europe was strong, showing a correlation between sport, business and
culture and hotel profitability.

Big ticket sport always boosts international arrivals, enabling cities to
fill hotel rooms during the tournament and make a sufficiently good impression
that people will want to return – and encourage their friends and family
to do the same. During the 2006 Winter Olympics in February, revPAR in
Turin’s hotels increased by 191%, reaching €176 – bypassing
established Italian favourites Rome and Venice for the first time.

Far-sighted investment ahead of the Games gave the city a €90m upgraded
airport, the most advanced underground system in the country and a generous
supply of high-quality hotel accommodation. All this has put Turin in a
stronger position to attract leisure and business travellers in the future
– in 2008, the city will host the World Architecture Congress, and will
also be acknowledged as the World Design Capital.

The natural link between world-class sport and hotel business was further
underlined in Spain, when Valencia welcomed an international fleet for the
America’s Cup in June. The sailing crews’ entourage, sponsors,
sailing enthusiasts and the media, helped fill hotel rooms and push up revPAR
by 15.7% in 2006.

HITTING THE TARGET

For football fans, the place to be in 2006 was Germany, which hosted the
World Cup. More than two million fans visited Germany for 64 matches in 12
cities, with extra flights laid on to meet demand. A former military base was
turned into a dedicated World Cup terminal at Frankfurt, and many hotels put
staff through rigorous training programmes to prepare them for the particular
needs of international visitors.

The whole country joined in the spirit of the occasion, with large TV
screens erected in squares, enabling those who couldn’t get tickets to
watch the matches live. All of this helped present a welcoming and positive
image to the world’s media.

RevPAR across Germany went up by 38% during June, the month of the World
Cup. The big winner, however, was Berlin, which hosted the final. The city was
fully booked on this memorable night, and data from Daily HotelBenchmark showed
that revPAR soared 1,000% to €283.

Overall, Germany had a record year in 2006, posting double-digit increases
for the first time since 2000. World Cup fever, combined with a more robust
economic performance, saw Germany finish the year with revPAR up 10.7% at
€55. The legacy of such a successful World Cup should be a continuing
influx of international visitors, altering the dynamics of the country’s
tourism industry, which has traditionally relied on domestic travel.

The UK hopes to emulate some of Germany’s success this July when
London stages The Tour de France – Le Grand Depart, with a spectacular
race past some of the city’s most famous landmarks, such as Buckingham
Palace, before competitors set off through the Kent countryside on the first
leg of the tour.

Tourism agencies know how a big event gives the hosts a chance to showcase
what they have to offer. This event will attract thousands of cyclists and Tour
de France supporters, as well as the world’s press and TV cameras. As the
UK builds up the necessary infrastructure for the Olympics in 2012, this key
fixture will present an opportunity for a well-managed rehearsal, which could
also attract more world-class cultural and sporting events.

THE ART OF TRAVEL

One of the reasons for Europe’s enduring popularity is the richness
and variety of its culture, particularly in music and the arts. During 2006
there were several good examples of how an important cultural event leads to a
corresponding jump in hotel performance.

In Austria, for instance, the 250th anniversary of Mozart’s
birth attracted tourists to Salzburg for a varied programme of festivities,
pushing up revPAR by almost 25% in 2006. Thousands of tourists visited
Amsterdam for the 400th anniversary of the birth of Rembrandt, giving the city
exceptionally high occupancy levels. Also, Madrid and other Spanish cities laid
on special exhibitions to mark the 125th anniversary of the birth of
Picasso.

Conferences also continued to pull in the crowds. The European Seafood Fair
in Brussels drew an extra 16,000 visitors and filled the city’s hotels,
pushing average room rates up 127% to €250 on 9 May 2006, the opening day
of the fair.

ROOM FOR GROWTH

Developing economies and a flourishing commercial sector are always good for
business. Last year, all industries – especially the IT sector –
expanded rapidly across Russia, where corporate demand for rooms is enabling
hoteliers to maximise profits.

Room rates in Moscow increased by 18% as the city replaces its massive
Soviet hotels with modern international chains. In 2006, InterContinental
Hotels Group opened the 523-room Holiday Inn Moscow Sokolniki and Ritz Carlton
will make its debut in June 2007 with a 334-room hotel.

“Developing economies and a flourishing commercial sector are always good for business.”

London, where business confidence is high, saw a spurt in hotel growth in
2006, with several new hotels opening for business and multimillion-pound
refurbishments of some old favourites, including the 282-room Hilton London
Canary Wharf, the 245-room Hilton London Tower Bridge. Well-known hotels
undergoing major renovations included Grosvenor House, the InterContinental
London Hyde Park, which re-opened in November 2006 as the InterContinental
London Park Lane and the Radisson Edwardian Mayfair.

The UK will experience a new hotel design concept – the small
guestroom. YOTEL, inspired by a combination of a Japanese capsule room and a BA
first-class cabin, will open at the country’s two main airports, Gatwick
and Heathrow, this spring. Although snug, all rooms have en suite bathrooms and
flat-screen TVs.

POLITICAL FACTORS

Not every European country shared the region’s good fortune during
2006. Hotels in Israel and Turkey faltered due to terrorist attacks and
political conflict. However, the impact was short-lived as Istanbul, Jerusalem
and Tel Aviv enjoyed revPAR increases of 7.3%, 8.0% and 3.8%, respectively.

Paradoxically, hotels sometimes actually gain from terrorism, as happened
last summer in London during the chaotic aftermath of the foiled Heathrow bomb
plot. Passengers stranded by cancelled flights intensified the demand for rooms
at Heathrow and Gatwick hotels. This surge was brief and confined to a small
number of hotels, so there was little to touch the UK’s overall
performance.

A more significant development was the continuing expansion of the
country’s low-cost carriers, whose cheap flights make visiting other
European countries seem like a better deal. Whether the UK Government’s
decision to introduce an environmental tax on these flights dampens the
enthusiasm for interregional travel remains to be seen.

The outlook for the hotel market in 2007, both in Europe and the rest of the
world, is good. People’s desire for new experiences, the increasing
numbers of people in India and China planning trips abroad for the first time,
and the growing popularity of emerging tourism destinations all point to a
healthy tourism industry. Although global economic and tourism indicators
suggest that performance may cool slightly this year, people are still keen to
travel.