Dubai hotel profits hit low in June

dubai - Summer and Ramadan contribute to a decrease in visitor demand

Profit conversion at hotels in Dubai fell to just six per cent 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 latest data from HotStats.

June is typically a quieter month for hotels in Dubai due to the stifling temperatures in the city and a trend for expatriates and locals alike to seek cooler climes, in addition to a high proportion of the population observing Ramadan.

However, the volume of demand in June has been in constant decline in recent years, with room occupancy falling from 79.3 per cent in 2013 to 76.8 per cent in 2014, 67.4 per cent in 2015 and now 51.2 per cent in 2016.

In addition to the 16.3 percentage point year-on-year decline in occupancy in June, a 9.2 per cent drop in achieved average room rate contributed to a 31.1 per cent decrease in revenue per available room (RevPAR) to $88.30 from $128.14 during the same period in 2015.

As total revenue per available room (TrevPAR) 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 percentage points to 43.4 per cent of total revenue.

As year-on-year profit per room plummeted by 74.8 per cent in June, gross operating profit per available room (Goppar) at hotels in Dubai was recorded at just $11.77, the lowest level since July 2014 (-$5.96).

The data also showed that Kuwait hotels faced challenges across all revenue departments in June. The volume of demand at hotels in Kuwait is typically at its lowest level of the year in June and this year it was no different, with occupancy recorded at just 38.1 per cent.

With achieved average room rate also falling to its lowest level since July 2014 to $212.52, as a result of a 6.8 per cent year-on-year decline, RevPAR in the Kuwait hotel market dropped by 20.8 per cent. In addition to the drop in room revenue, hotels in Kuwait also suffered a significant decline in ancillary revenue departments.

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

Hotels in Riyadh suffered a 46 per cent 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 percentage points in June to 33.3 per cent of total revenue, profit conversion for Riyadh hotels slipped to 26.9 per cent of total revenue, from 39.4 per cent during the same period in 2015.

- rohma@khaleejtimes.com