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Tue 9 Aug 2016 07:04 PM

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Dubai hotel profits nosedive in June as demand eases

Hotels in Riyadh and Kuwait also struggle to halt sliding rates and revenues as summer temperatures kick in

Dubai hotel profits nosedive in June as demand eases

Profit conversion at hotels in Dubai fell to just 6 percent 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 but the volume of demand in June has been in constant decline in recent years, with room occupancy falling from 79.3 percent in 2013 to just 51.2 percent this year.

In addition to the 16.3 percent year-on-year decline in occupancy this month, a 9.2 percent drop in achieved average room rate contributed to a 31.1 percent decrease in RevPAR (revenue per available toom) to $88.30 from $128.14 during the same period in 2015, the survey said. 

It added that 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 percent to 43.4 percent of total revenue.

As year-on-year profit per room plummeted by 74.8 percent this month, GOPPAR (gross operating profit per available room) at hotels in Dubai was recorded at just $11.77, the lowest level since July 2014.

In Kuwait, demand at hotels is typically at its lowest level of the year in June and this month was no different with occupancy recorded at just 38.1 percent, the survey showed.

With achieved average room rate also falling to its lowest level since July 2014 to $212.52, as a result of a 6.8 percent year-on-year decline, RevPAR in the Kuwait hotel market dropped by 20.8 percent.

Year-on-year TrevPAR at hotels in Kuwait declined by 25.9 percent in June to $185.57 from $250.41 during the same period in 2015. Despite cost savings in both labour (-16.8 percent) and overheads (-8.2 percent) Kuwait hotels suffered a 35.2 percent decline in profit per room this month, to $55.71.

Hotels in Riyadh suffered a 46 percent year-on-year decline in profit per room in June as the volume and price of demand associated with the commercial sector fell away. 

The commercial sector is a significant contributor to demand for hotels located in Saudi Arabia's financial hub, but market data suggests that it is on a downward trend.

As payroll levels increased by 6.4 percen in June to 33.3 percent of total revenue, profit conversion for Riyadh hotels slipped to 26.9 percent of total revenue, from 39.4 percent during the same period in 2015.

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