July 2003: European Airport Hotel Performance - Ready for Take-Off?

Although 2002 saw a marginal improvement in international air passenger
traffic compared to the heavy declines in 2001, the airline industry has
experienced new challenges in 2003 following the conflict in Iraq and the
outbreak of SARS.  Year-to-July figures from IATA reveal that overall
passenger traffic is 6.5 percent below 2002 levels. Although there appears
to be a general improvement in passenger numbers over recent months, with a
number of European airports, reporting record numbers for July and August,
the reality is that these are still far below the levels achieved in 2000.
Hotels at Europe’s major airports have born the brunt of the fall out, with
year-to-July 2003 figures showing a number of key airport locations still
reporting double-digit revenue per available room (revPAR) declines.
Data from the HotelBenchmark Survey by Deloitte & Touche
showed that during
2002, with the exception of Frankfurt, hotels at main European airports
suffered greater losses in revPAR than their counterparts in city centre
locations.  Year-to-July 2003 figures however show the reverse (with the
exception of Amsterdam Schiphol) with city centre hotels reporting greater
losses in revPAR than hotels at airport locations.  Despite this
‘role-reversal’, the figures provide little comfort to hoteliers at airport
locations - the reality is that revPAR performance for the first seven
months of the year is still below that achieved during the same period in
2002, with Heathrow, Gatwick, Amsterdam - Schiphol and Paris - Charles De
Gaulle all reporting double-digit declines.

Of the seven airport markets tracked across Europe, Schiphol experienced the
largest decline in revPAR during the first seven months of 2003.
Historically the market has benefited from constrained hotel supply in the
city centre, which as a result has meant that surplus demand for hotel
accommodation in the city has typically overflowed to the airport.  However,
as occupancy levels have fallen in the city centre, this overspill of demand
has not materialised.  To compound the problem, two new hotels have
recently opened at the airport - the 148-room Marriott Courtyard and the
222-room Dorint, which opened in July and August 2003 respectively. 

Year-to-date figures show that hotels at Heathrow and Gatwick have managed
to record the highest occupancy levels of all the airport markets reporting
72.5 percent and 74.6 percent respectively.  Performance however remains
below the 80 percent level that they have previously traded at. Average room
rates have also come under pressure, falling by 13.9 percent and 16.1
percent respectively.  Gatwick hotels in particular have been affected by
the relocation of some long haul flights to Heathrow.

Brussels Zaventem and Frankfurt Airport are the only markets that have
managed to increase occupancy levels this year, albeit marginally.  The
performance of Frankfurt however is largely attributable to the significant
renovation programme undertaken by both Sheraton and Steigenberger, which
has resulted in reduced capacity in the marketplace.  Although Zaventem has
seen occupancy increase by 1.1 percent, this growth has come from a very low
base.  Year-to-July 2003 occupancy currently stands at 59.2 percent, however
during the same period in 2001 the market was trading at 72 percent.  Much
of this decline has been driven by the fall in passenger numbers caused by
the collapse of Sabena, the Belgium national airline, at the end of 2001