Many Happy Returns for the Hospitality Industry

31st March 2010 (Last Updated March 31st, 2010 18:30)

Hotel performance in Europe may still be jittery but the tourist industry is beginning to pick up in some parts of the world. Jessica Jahns, manager of tourism, hospitality and leisure at Deloitte, looks at the global numbers for the hospitality industry.

Many Happy Returns for the Hospitality Industry

2009 was a year of economic turbulence, and with the world facing one of the most severe recessions since the Second World War. However, many economies have now exited the recession and consumer confidence is rebounding, impacting hotel performance in a positive way. Occupancy has started to post growth in some key destinations, which is a sign that the recovery has begun.

Occupancy rates in Central and South America

Hotels in Central and South America saw revPAR fall 14% to $67 in 2009, the least severe decline of all global regions. This was led by a 9.3% decrease in occupancy to 59.8%, while average room rates fell 5.2% to $112. Despite the double-digit decline in revPAR for the year, the final quarter of 2009 saw the region post a 4.7% rise, indicating that recovery has started.

Brazil will host two prestigious events over the next decade, including the 2014 FIFA World Cup and the 2016 Olympic Games, which the country hopes will be a permanent boost to its tourism industry. 2009 saw Rio de Janeiro post the only revPAR growth in the region, up 3.3% to BRL198. Much of this growth was led by a 4.4% increase in occupancy to 67.7% while average room rates fell marginally. Neighbouring Sao Paulo was among only four cities in the region to see average room rate growth, up 5.8%. However, unlike Rio de Janeiro, this did not enable the city to post revPAR growth as occupancy fell 8% to 60.1%.

Occupancy rates in the Middle East

“The Middle East posted the highest occupancy (61.3%), average room rates ($202) and revPAR in the world during 2009.”

The Middle East reported revPAR declines of 18.3% to $124 in 2009. This performance was driven equally by declines in occupancy and average room rates, both falling 9.6%. Despite these falls, the Middle East posted the highest occupancy (61.3%), average room rates ($202) and revPAR in the world during 2009. Beirut remains the best performer in the region with a 62.1% leap in revPAR to $146 as political stability strengthens in the city.

On the flip side, with the largest drop in revPAR in the region was Dubai, seeing revPAR slide 31.4% to $163. The emirate has hit the headlines with a mixed bag of news over the past few months, including a request from Dubai World for a six-month extension from creditors, which sent global markets tumbling at the tail end of 2009.

However, the start of 2010 saw the opening of the tallest building in the world in Dubai, the newly named Burj Kahlifa, with some seeing this as proof of the UAE’s robust economy, able to confront any challenges. Despite the significant falls in performance, Dubai continues to achieve some of the highest average room rates and revPAR in the region even as new supply continues to flood the market, which is good news for hoteliers. Neighbouring emirate Abu Dhabi, although seeing revPAR fall 11.8% in 2009, stole the top spot in average room rates ($285) and revPAR ($202) in the Middle East. After successfully hosting the Abu Dubai Grand Prix in October 2009, these strong results are not surprising; however in the year ahead the emirate will need to absorb this new supply to continue to achieve these results.

Continuing decline in North America

RevPAR in North America fell 17% to $54. This decline was a result of occupancy falling 8.7% to 55.2% and $10 being stripped off average room rates to settle at $98. These results unfortunately put North America at the bottom of the global league table in all three performance indicators. Of the top 25 markets covered by Smith Travel Research, all but two markets in North America reported double-digit revPAR declines in 2009.

Washington DC continues to be one of the stronger performing cities, witnessing a revPAR decline of just 8.5% to $94. At the other end of the spectrum, Chicago, Houston, Detroit, New York and Phoenix all reported revPAR declines in excess of 20%. In New York, it was average room rates that drove the decline, falling a staggering 21.8% to $215.

Signs of improvement in Asia Pacific

In 2009 revPAR in Asia Pacific fell 19.4% to $73. Average room rates fell $19, while occupancy dropped 6.9%. Despite year-end revPAR reporting double-digit declines in the region, hotel performance has been picking up since September 2009 and revPAR declines have been decelerating. Both November and December reported growth in revPAR, resulting in a revPAR increase of 2.6% for the final quarter of the year. This is good news for the region and confirms that Asia Pacific is on the road to recovery.

“Despite year-end revPAR reporting double-digit declines in the region, hotel performance has been picking up since September 2009.”

When measured in local currency, the South Korean capital Seoul was the only city in Asia Pacific to see an increase in both occupancy and average room rates, rising 3.8% and 4.7% respectively. This gave the city the opportunity to steal first place across the region in terms of revPAR growth, rising 8.7%, and also achieve the highest occupancy at 80.9%. Bali was the only other city in Asia Pacific to post revPAR growth, up 3%. There has been a substantial growth in tourist arrivals during 2009, with 1.67 million reported as of October, a 13% increase over the same period last year. The Bali Tourism Board has set an ambitious target to attract 2.1 millions foreign tourists in 2010. Meanwhile, cities in China, India and Thailand continue suffering, with many reporting revPAR declines of more than 20% in local currency. Beijing reported the largest declines in revPAR, down 43.2% as the city still suffers from a post-Olympic slump, followed closely by New Delhi and Mumbai in India, down 34% and 29.4% respectively.

A long road ahead for Europe

When measured in US dollars, Europe remained the worst performer in 2009, with revPAR down 21.2% to $81. However, this decline is less extreme when reported in euros, falling 16.7% to €58. Double-digit drops in average room rates led much of the decline, falling 11.2% to €94, while occupancy fell to 61.1%. RevPAR has eased across the region since April 2009 and the end of the year saw December post a 2.1% growth in revPAR, which is welcome news for hoteliers. All cities across Europe reported drops in revPAR during 2009, with the weakest performers Athens, Dusseldorf, Madrid and Moscow, reporting drops in excess of 25%. A number of cities in the UK, however, started to post growth in occupancy – albeit marginal – including London, Edinburgh and Glasgow, a sign that hotel performance is now on the road to recovery. The three cities also secured the top three occupancy spots in Europe at 80.5%, 75.3% and 74.5% respectively.

Overall outlook

Although 2009 saw all world regions post double-digit revPAR declines, the rate of decline has been decelerating in Asia, North America and Europe since September 2009. This trend is likely to continue into 2010 as the comparables will be weak and some form of recovery takes place in each market. Although the beginning of 2010 will still be a challenging time for hoteliers around the world, it will also be an exciting time as many have taken the opportunity to fundamentally review the way their businesses operate so that as the recovery takes hold profitability should be strong.