Profitability Soars in Middle East Hotels

15th Jun 2004

Latest profitability figures from the HotelBenchmark Survey by Deloitte reveal that despite the war in Iraq and global economic conditions, hotels in the Middle East turned in an impressive performance during 2003. Profitability conversion levels rose to an average 42 cents of every dollar spent being retained as profit. This compares with a conversion ratio of 39 cents reported in 2002.
Despite international visitor arrivals to the region increasing by 10 percent during 2003, overall demand levels for hotels remained static at 63 percent. However, it was the 5.3 percent growth in average room rates that helped drive the improvement in profitability across the region. Fuelled by an increase in intra-regional travel as many people chose to boycott destinations in North America and Europe, hotels sought to aggressively push rates upwards. Consequently the Middle East was the only region to report any growth in average room rates during 2003.

With occupancy levels unchanged Middle Eastern hoteliers were shrewd in managing to cut costs. Departmental costs fell by 3 percent in 2003 whilst undistributed operating expenses fell by 3.2 percent. The most significant cost saving was made in energy where the per available room cost fell from US$2,212 to US$2,081. As a consequence profitability (at Income Before Fixed Charges level) rose from US$14,857 to US$16,016 per available room.

Hotels in Kuwait were the regions star performers reporting a massive 75 percent growth in profitability. This was helped by a 55 percent increase in occupancy due to demand from the military and journalists covering the Iraq war. Overall hoteliers achieved a 51 percent profit conversion level. Hotels in Sharm-el-Sheikh also performed well with profitability levels growing by 27 percent on the previous year. Indeed, hoteliers in Sharm-el-Sheikh managed to achieve a higher profit conversion rate than those in Kuwait at 53 percent helped by having the lowest payroll costs in the region (12 percent). However, it was Cairo’s hoteliers that were the winners with a profit conversion rate of 57 percent. The city’s hoteliers also benefited from a low payroll cost which helped keep departmental costs at just 25 percent.

Commenting on the results, Julia Felton, Executive Director of HotelBenchmark at Deloitte said:
“With the first quarter results of 2004 already breaking industry records across the region we remain confident of the prospects for the Middle East. Expected growth in both demand and average room rates will help profitability levels improve further during 2004, assuming of course no adverse affects caused by political instability and terrorism attacks.”



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