RevPAR Progress

5th April 2006 (Last Updated April 5th, 2006 18:30)

Terrorist attacks on London and Sharm El-Sheikh and recovery from the Boxing Day tsunami of 2004. International political tensions. 2005 was in many ways a tumultuous year. But how have hotels performed? Nina Bruun, from the HotelBenchmark Survey by Deloitte, reports on the industry's mixed fortunes.

RevPAR Progress

Given the backdrop of terrorist threats, the volatile political situation in the Middle East, and health scare headlines, it would have come as no surprise if the world’s travellers had decided to put their suitcases away and stay at home last year. However, despite the run of both man-made and natural disasters, international tourist arrivals passed the 800 million mark for the first time in 2005, an increase of 5.5%.

Some see this as confirmation that travellers now recognise the risks involved in travel, but are prepared to live with them. Others point to the compelling combination of the surge in low-cost carriers, the easing of visa restrictions and the emergence of a new middle class, keen to spend disposable income on travel.

Whatever the reasons, 2005 was a positive year for the hotel industry overall, and the regions tracked by the HotelBenchmark™ Survey by Deloitte – Europe, Central and South America, Asia, the Middle East and Africa – all recorded revenue per available room (revPAR) growth. Estimates for last year’s increase in international tourist arrivals, although not as spectacular as 2004’s 10.7%, still overshot the long-term average annual growth rate of 4.1% by some distance, according to the World Tourism Organisation (UNWTO).

CENTRAL AND SOUTH AMERICA – A GROWING FORCE

This region is without doubt a growing force in tourism, with revPAR up 28% in 2005. Improving economic conditions have had a positive impact on domestic demand in Central and South America, which has in turn stimulated hotel performance across the region. Tourist arrivals have also been on the up, with visitors to Central America and South America increasing by 13.6% and 12.7%, respectively. This has also led to a boost in the confidence of the hotel chains now expanding into the region.

THE MIDDLE EAST – AGGRESSIVE INVESTMENT

The impressive 21.4% growth in revPAR across the Middle East was fuelled by an incredible 23% increase in average room rates, which soared to $117 compared with $95 in 2004. In the past decade, international visitors nearly tripled from 13.5 million to 38.4 million, making the Middle East the fourth most visited region in the world.

International tourist numbers are still expected to grow quicker here than any other region, and even though the political situation remains fragile in some countries, the area as a whole is experiencing the largest wave of hotel and airport construction ever. Within three years, around 80 new hotels will have been added to the Arabian peninsular alone, as building work and reclamation drives ahead.

“It would have come as no surprise if the world’s travellers had decided to put their suitcases away and stay at home last year.”

Most countries, even Iraq and Saudi Arabia, have ambitious targets to expand tourism and are pursuing growth quite aggressively in a move to diversify their economic base. The Emirate of Dubai, which is quickly becoming a favourite with visitors because of its year-round sunshine, is said to be planning for 15 million tourists within five years. The speed at which Dubai has climbed HotelBenchmark’s Global Ranking Index – which compares 165 cities across the world – is remarkable. In just five years, it has overtaken some of the world’s most popular destinations to claim second place in the index behind the perennial favourite, Venice.

Doha, in Qatar, is making an impressive bid to emulate Dubai, and in just five years has achieved a phenomenal increase in average room rates, earning itself its first appearance at Deloitte’s global top 20 table. The Qatari Government is spending billions of dollars to promote the country as a premier tourist destination, relaxing its visa laws and offering a warmer welcome to western lifestyles.

Neighbouring Abu Dhabi has its sights set on three million visitors by 2015, while Egypt wants to push its eight million tourists up to 12 million by 2012. To date, the focus across the Gulf States has been on five-star – even seven-star luxury, but the dynamics are set to change as mid-market brands move in to respond to the increasing demand from the region’s growing middle class.

ASIA – DEMOGRAPHIC SHIFT

This demographic shift is also having a considerable impact across Asia, particularly China and India, where the emerging middle classes have increased disposable income to spend on vacations. Across India, for instance, arrivals were up 13.2% to 3.4 million. The domestic picture also looks good, as many people with the cash to travel are choosing to spend it within their own country, which they consider to be safer than neighbouring countries.

It is predicted that by 2020 China’s influence on world tourism will be formidable. Not only will it be the world’s most popular destination for international arrivals, it will provide the fourth-largest source of outbound tourists. The growth of two-way travel is being underpinned by three key trends felt throughout the region – low-cost airlines, the relaxation of visa requirements and a robust economy – which pushed international visitor arrivals to China up 13% last year, bringing 47 million visitors into the country. China’s two gateway cities – Beijing and Shanghai – are the prime beneficiaries and will continue to benefit as they prepare to host the Olympics in 2008 and the World Expo in 2010.

On top of the Beijing Olympics, the Commonwealth Games in Melbourne and Delhi are likely to attract huge numbers of tourists. Melbourne is already in buoyant mood, having seen passenger arrivals at its airport reach an all-time high of 20 million last year, with international arrivals accounting for 20% of the total, a 15% increase on the year before.

Tourists choosing Australia were up by 5% overall last year, with Sydney remaining a firm favourite. The city moved up several positions to feature in the HotelBenchmark Top 20 revPAR Global Ranking Index and its continuing popularity was confirmed when it was named yet again as the ‘World’s Best City’ by readers of the US publication Travel & Leisure.

SOUTH EAST ASIA – AFTER THE TSUNAMI

Interestingly, the second fastest growing economy in Asia is now Vietnam, which saw an 8% increase in GDP in 2005, according to the country’s General Statistics Office. Local, political and economic stability, plus government initiatives to make the country more attractive to tourists and investors, all add to its appeal.

The picture is less bright in Thailand, where the aftermath of the December 2004 tsunami is still evident. Thai resorts on the Adaman Coast, for instance, have seen a sharp decline in hotel performance, and consumer and investor confidence has yet to return. Vietnam, on the other hand, as one of the few destinations in South East Asia not to have been damaged by the tsunami, is providing holidaymakers with an alternative choice.

Asia Pacific has enjoyed 9.1% revPAR growth overall. With a 7.4% surge in tourist arrivals, the area has become the second most visited place in the world. Like many other regions, it is benefiting from the triple play of low-cost airlines, the relaxation of visa requirements and a robust economy.

The UNWTO expects Asia Pacific to be the fastest-growing region in the world in the year ahead. Visitor numbers are likely to increase by 9%.

SOUTH AFRICA – GROWING POPULARITY

Like Sydney, South Africa also proved appealing to Travel & Leisure in 2005; the magazine rates the country as being home to five of the world’s top ten hotels (including number one). South Africa is also popular with UK visitors, who rated Cape Town the best city in the world for eating out.

With such accolades, it is not surprising that over the past decade, tourism’s contribution to the country’s economy has almost doubled, with a knock-on impact on hotel performance. This is a remarkable achievement for a country that was not even on the tourists’ map just over ten years ago.

Growth has been good every year since the HotelBenchmark Survey began to track hotel performance in South Africa. During 2005 its revPAR increased by 10% – beating both Europe and Asia.

South Africa will benefit from the massive attention that comes its way as part of the FIFA World Cup in 2010, and has also embarked on a mission to attract more corporate visitors, with its ‘Business Unusual’ campaign aimed at the meetings, incentives, conferences and events (MICE) market segment.

The country plans to take business away from more traditional destinations across Europe, such as Brussels, which has been struggling recently with the temporary closure of the Palais des Congrès.

EUROPE – SLOWER BUT STILL AHEAD

Even with this increasing competition, Europe’s leadership in revPAR terms remained strong, with European cities filling most places in the Top 20 Global Ranking Index last year. Although Europe’s hotel performance was no match for other regions of the world, it still managed to end the year with revPAR up 4.1%. Exchange rates have helped, making vacations to the Euro zone more appealing to visitors from North America and the UK, while an expanding network of low-cost airlines takes visitors to neighbouring Eastern Europe.

“Estimates for last year’s increase in international tourist arrivals overshot the long-term average annual growth rate of 4.1% by some distance.”

When viewed overall, there were clear winners and losers across Europe last year, with hotel markets reflecting what was happening in the world of news, politics and sport. Hotels at London’s two main airports, Heathrow and Gatwick, saw strong business when a strike by British Airways caterers left thousands of passengers stranded. Likewise, Rome’s hotels benefited from the death of one Pope and the inauguration of another.

With half of all foreign visitors to the UK choosing London, the sharp drop in visitors following the July bombings hit the tourism industry hard. Conversely, with Israel’s image as a safe destination becoming more credible, tourist numbers there grew by 27%.

And while Moscow enjoyed another great year – due mainly to an influx of business travellers plus a shortage of western-style rooms – Athens waited in vain for the long-term benefits of hosting the Olympics. While the Games had pushed its revPAR up 261% in August 2004, the picture was quite different last year, and revPAR declined by almost 19%. Despite the rather bleak picture in Athens, however, Europe’s absolute revPAR still remains the highest in the world at €69.

THE GLOBAL FORECAST

Growth across Europe is expected to be steady, rather than spectacular, during 2006, with much brighter forecasts for other regions in the world. More hotel chains will choose consolidation, and some of the major players are expected to focus on the massive potential in the undeveloped markets of India and China.

There are, as always, some clouds on the horizon, including avian flu and the continuing threat of terrorism, but the hotel industry has proved itself capable of absorbing last year’s tough challenges and is adopting a more robust attitude to risk management. What the figures from 2005 seem to show is that even major disasters fail to dampen people’s enthusiasm for travel.

The HotelBenchmark™ Survey contains the largest independent source of hotel performance data outside of North America, tracking more than 420 markets in 140 countries on a daily and monthly basis.