European Hotel Stats Show 2005 Growth
Similar to the current bullishness of the United States' hotel industry, recent figures from of Europe indicate a burgeoning industry and tougher negotiating climate for corporate travel buyers, according to data compiled by consulting firms through Europe.
Many European countries enjoyed favorable growth levels at or above 2004 totals, according to new reports from MKG Consulting, PKF Consulting and KPMG, in association with research marketing information outfit The Bench. MKG's data is based on a sample of 10,000 corporate chain hotels representing 1 million rooms, while the numbers gathered by The Bench represent over 300,000 rooms worldwide in the three-star, four-star, and five-star segments. PKF's data comprises properties in the United Kingdom and Germany.
The data bode well for an industry that has rebounded from the buyer's market. David Tarsh, head communications adviser for The Bench, was buoyant over the numbers and is optimistic about future success for the industry. "Travel and tourism is a great industry right now," he said. "It's an industry that is growing ahead of inflation and data reflect that people are again traveling."
The numbers are quite telling. Consider the United Kingdom: Despite the London bombings last July, the United Kingdom recorded over 5 percent growth in revenue per available room, according to numbers from PKF and The Bench. Jennifer Viloria, head of research for PKF's hotel consultancy services division, contended that the good year had by the U.K. hotel industry was not because demand increased, but rather due to room rates remaining high. "RevPAR growth was driven by higher, stronger rates, rather than occupancy," she said. "Hotels held off discounting rates, even after the July bombings, and got better at yield management. International business travelers then started to come back in September and filled up the deluxe segment hotels. Rates have been underpinning RevPAR."
According to The Bench, London positioned itself at the top of European RevPAR performance, but perhaps even more notable is that the rest of the United Kingdom grew almost twice as much due to strong performances from such cities as Liverpool and areas surrounding Gatwick Airport and London Heathrow. Not surprisingly, the latter two regions benefited from airport overflow. "Low-cost airlines are making it easier to fly and people need places to stay," remarked Tarsh. "Airport hotels near Gatwick and Heathrow are thriving because of this. People stay in them because of flight timings. Also a lot of conference business is conducted at the airport hotels, even domestic conferencing."
The United Kingdom's resurgence also is linked to the influx of investment and the increase of supply. Contrary to the norm, the rise in supply has not given way to dampening profitability. "More people are putting money into the U.K., which is driving up supply," PKF's Viloria explained, "but the supply is being absorbed by demand and occupancy rates are not declining."
Following London's lead, Paris' hotel industry continued to thrive in 2005, drawing on a strong infusion of business travel and the favorable euro/dollar exchange rate. According to MKG, RevPAR rose 3.1 percent year over year in France, enhanced by an average room rate increase of 2.3 percent. Although France's occupancy rate checked in below 70 percent, it was tempered by an average Paris room rate of a shade under $238, tops among European cities, according to The Bench. This despite a sagging economy spurred by France's rejection of the European Union Constitution and riots in October and November. Depressed economic indicators notwithstanding, France performed well overall across the board. Most resounding is France's upsurge at the end of the year, which augurs success for 2006. According to MKG, France's November RevPAR spiked 11.3 percent, its highest monthly increase in five years.
In stark contrast to the United Kingdom and France are Germany and Spain. Spain's hotel industry actually regressed in 2005, with RevPAR falling 2.7 percent, according to MKG. However, in 2004, Spain's RevPAR dipped 7.3 percent. One explanation for Spain's declivity is supply expansion and lagging demand. Coupled with this is the fact that Spain's average daily rate too decreased in 2005, set against an occupancy rate that stood at 65.5 percent, according to MKG numbers. However, the development of international brands will be advantageous to Spain.
The economic malaise of the German economy is reflected in its stagnant numbers. Germany's 2005 occupancy rate was just higher than 62 percent, lowest in the class of countries presented by MKG. The low occupancy rate is attributable to supply proliferation not being matched by demand. Although Germany enjoyed the highest point change in occupancy rate from 2004, it was offset by a decrease in average daily rate. Viloria contended that the cyclical nature of Germany's hotel market—along with less alluring travel destinations than a Paris or London—is the culprit for industry woes. "A lot of the market in Germany is driven by events and conferences, as opposed to ongoing inflow like in the United Kingdom or France," she said. Both Viloria and MKG believe the 2006 World Cup, being contested in Germany in June and July, will spike industry performance.
The outlook for Europe looks surprisingly healthy, but Liz Hall, head of research of hospitality and leisure for PricewaterhouseCoopers LLP in London, although optimistic, remains cautious. "Overall in terms of outlook it's a pretty positive environment, although the risks to the downside are real and consumer confidence not that robust," she said. "Overall we expect stronger growth in 2007 and 2008 due to revised-upwards data for the economy in 2007-08, but weaker in 2006. Barring any Iran-shock on oil prices or Avian flu spreading from Turkey, the environment is positive and growth should be realized."