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Recovery Confirmed - But is the Growth of London Hotel Profitability sustainable?

London hotels have seen a year of recovery, with revPAR (revenue per available room) up by £8 to £78 - a 12% increase compared to 2003, according to 2004 figures from Deloitte. The HotelBenchmark Survey shows that London hotel occupancy was up by 5% to 77% and the average room rate had increased £5 to £101 compared to 2003.Marvin Rust, hospitality partner at Deloitte, said: “Our predictions in 2003 for growth in revPAR of 10.6% were the most optimistic in the industry at the time, but have proved to be not far off the mark. However, this year, we are predicting a slackening in the rate of growth to 4.1% due to the slowdown in the world’s key economies and the lag effect of last year’s oil price rises.

“To repeat last year’s performance hoteliers will need to carefully manage their customer and distribution channel mix to replace low margin business with more profitable lines. Now that the London hotel market’s occupancy levels are approaching 80% further growth will become increasingly challenging for the industry.”

In London strong growth was experienced by hotels catering for the corporate traveller / business conference end of the market (rooms priced at £160 - £200), which recorded a 15% increase in revenue per available room on the same period last year.

In the regions, Newcastle has taken Cardiff’s crown as the top performing regional city with a jump in revPAR of 12% driven primarily by an increase in the average room rate by £4 to £61.

London airport hotels were also strong performers, with Gatwick winning the ‘battle of the airports’ recording a 15% increase in revPAR with occupancy topping 80%. Heathrow also saw good occupancy gains with a 6% rise. These results reflect the record number of passengers handled by BAA’s London airports in 2004.