Part 1: Overview
The international hotel industry has shown signs of recovery in the first half of 2010 according to the bi-annual hotel survey conducted by Hogg Robinson Group (HRG), the world class corporate travel services company. Although the survey reveals a fragmented global picture, the hotel market in Europe and the US appears to be stabilising, as rates are either flat or only marginally down. In addition 12 of the 50 cities surveyed achieved a year on year rate increase when measured in pound sterling. In contrast though, the Middle East region recorded the highest rate decrease, with double digit falls in the UAE, Bahrain, Qatar and Oman.
Key trends noted by HRG include:
* Many European cities saw average rate growth, such as Stockholm (13%), Zurich (7%) and Geneva (5%), and five of the top ten most expensive cities worldwide were in Europe: Geneva, Paris, Zurich, Stockholm and Oslo
* London has seen a 1% increase in average rate in the first six months of 2010, after a 4% decline in 2009, and maintains its position at 23rd in the rankings. The increase was driven by a significant increase in corporate occupancy levels and buoyant demand from the leisure sector. The snow and bad weather adversely affected the market in the early part of the year but it rebounded in the second quarter
* Moscow yet again retains its place as the city with the highest average room rate for the sixth year, despite a fall of 12% when measured in local currency. Geneva and Hong Kong were the second and third most expensive cities respectively
* Abu Dhabi rates fell by 26% in sharp contrast to the 38% growth in average rate recorded in the first half of 2009
* Rates in the US were flat or marginally back compared to 2009 figures, with the exception of San Francisco where average rates fell by 11%
* The top end of the market continues to hold up well, with an average rate increase of 1% in 5 star hotels
Of the results, Margaret Bowler, Director of Global Hotel Relations at HRG, says: “Globally, the hotel industry has shown signs of recovery in the first half of 2010 when compared to the same period in 2009. A majority of the cities surveyed, although not yet in positive growth, certainly recorded an improvement in performance. It is good to see the positive effect of certain sectors travelling more regularly, however it is clear that the rate of recovery is mixed and varies according to region, country and specific markets. The challenge now facing hoteliers is to increase rates in line with demand to pre-recession levels, something which many forecasters believe will not happen until 2012 at the earliest.
“Expectation is high for further recovery in rates and the big hotel groups are understandably working to return their rates to pre-recession levels. HRG has witnessed companies reviewing and consolidating their travel programmes to secure lower hotel rates through increasing their market share with a preferred hotel supplier. We continue to help corporates navigate a complicated market and ensure business travellers have the best hotel deal.”
Douglas McWilliams, Chief Executive of cebr (Centre for Economics and Business Research Ltd.), a leading economic think tank which analysed the HRG survey, commented:
“We are in the middle of a global economic recovery which remains in a fragile state. Whilst the possibility of a double-dip recession is relatively small, the pace of the recovery varies significantly across the world. The latest HRG Hotel Survey illustrates the effects of a multi-speed economic recovery in the hotel market. Many western economies are coming to terms with the budget cuts necessary to reduce sovereign debt levels which will inevitably soften room rate growth.
“Dynamic emerging economies have less need to take fiscal austerity measures in the current climate and we expect growth to be higher as a result. However, the survey shows that emerging economies have not, as of yet, fully recovered from the effects of the global economic downturn. In the UK, growth prospects are buoyed by a weak sterling which continues to support tourism and leisure travel. In addition, the ongoing recovery of the banking and finance sector will contribute to corporate demand for rooms. There are, however, significant downside risks to growth in the market emerging from future cuts in public spending”.
HRG’s interim survey is based on a combination of industry intelligence, actual room nights booked and rates paid by its UK clients during January to June 2010 compared to the same period in 2009.
The GBP exchange rate is based on the average for the period 1 January to 30 June 2010 versus the average during the same period in 2009 (data source www.oanda.com)
Part 2: In depth analysis
Even taking into account the effect of currency fluctuations, average room rates vary significantly by city when compared to the same period in 2009, revealing a very mixed performance across markets. Six of the top ten cities managed to achieve average rate growth when measured in local currency.
Moscow has maintained its place at the highest average room rate for the sixth year despite a 12% fall in local currency.
Meanwhile, Abu Dhabi, which in HRG’s January to June 2009 survey was in second place and the only top ten city at the time to record any growth (5%), has seen a dramatic reversal, experiencing the highest average rate reduction of 25%. Like Dubai, Abu Dubai has faced a substantial fall in occupancy combined with ongoing new hotel developments, set to continue for some time to come.
Hong Kong achieved the highest growth performance in local currency terms, recovering from an 18% decline in 2009 to growth of 13% in 2010, assisted by a substantial increase in travel into the city from the Banking and Finance sector.
Rome, Copenhagen and Dubai (-7%, -10% and -12% in GBP terms) drop out of the top ten, falling to 14th, 16th and 19th positions respectively.
Part 3: Summary
Margaret Bowler of HRG says: “2010 has so far proved an encouraging year for the global hotel industry. The average length of stay has increased by 9% suggesting that corporates have begun to relax their travel policies in light of the perceived improvement in the current economic climate. However, our data shows that it is not consistent around the world and it is still too early to predict how the rest of 2010 will pan out.
“In addition to lower pricing and in many cases last room availability* (LRA), corporates have been able to negotiate added value items – or unbundled items as the airline industry puts it – within their rates such as food and beverage discounts, free wi-fi access and reduced parking charges. However, it is inevitable as the industry recovers that yield management will come back into play and suppliers will seek to unbundle further their pricing to gain maximum revenues. Even in the current market, certain cities are achieving high occupancy levels on peak nights and HRG continues to advise clients to secure sufficient allocation in high volume locations.”
Margaret Bowler adds: “Reflecting the need for cost reduction, clients are downgrading between the star ratings as well as continually reviewing their programmes and renegotiating rates where possible. In the 3 and 4 star markets average rates have decreased as suppliers strive to maintain their share of the corporate market. We continue to believe that budget options are not always the cheapest option when the add-on costs are taken into account.
“With the uncertainty in the market in 2009 the Request for Proposal (RFP) season was extended with many corporates delaying issuing their annual RFP in the hope that the market would continue to fall and more favourable rates become available. With the recovery underway it is likely clients will revert to the traditional RFP season. It will be interesting to see how rate negotiations progress over the rest of 2010 ahead of any further growth in the industry.”