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Growth of rates picks up speed

The cornerstone of all rate policies, the rack rate is a representative indicator of the good or bad health of the hotel industry. In 2007, the rack rate boosted the return to growth already observed in 2006. Growth was 4.5% versus 2.8% for the previous year. With 6.0% progress, France is one of the motors behind this growth.IPACH

Benefiting from a climate that is propitious to rate growth, year after year Europe’s hotel industry adopts an increasingly ambitious rate policy. For the four most representative countries – Germany, Spain, France, United Kingdom – the rack rate of a single room at corporate operated hotels shows clear growth by 4.5%. Last year, the 25 countries in the European Union posted a 2.8% increase. 2007 boosted the recovery observed last year. After a phase of slackening off and then a drop in rack rates that reached its low-point in 2005 (-0.8%), an inverse trend seems to have begun. Occupancy at European properties continues to progress. And this high volume of activity in terms of both business and leisure segments allows hoteliers to adopt a pricing strategy with higher reference prices.Having run into difficulties caused by overcapacity in the past, Spain’s hotel business is back on the right track. While the drop was significant in 2005 with rack rates down by 1.9%, 2006 had entered a clear recovery (+3.8%). The phenomenon continues in 2007 with a significant acceleration by 3.9% and a rack rate for a single at 121.4 euros. The appeal of the two major cities Madrid and Barcelona, which hosted the America’s Cup like Valencia, encouraged significant growth in upscale hotel prices (+5.2%).This maneuvering margin is especially broad in France. This year rack rates reached an average of 113.1 euros for a single room. This 6.0% increase followed 4.0% growth in 2006. Considering the high volume of hotels for tight budgets, French hotels remain some of the most affordable in the European Union, contrary to some of the well-established clichés. Only the 4* category reports prices that are higher than those in neighboring European countries thanks to Paris’s luxury hotels.The growth rate of prices in the upscale category continues along a trajectory with high base rates (+4.0%). But it is no longer, like last year, the primary growth motor. The mid-scale segment is now in a leading position and posts growth by 7.9%. The occupancy rate at 3* hotels is gradually catching up to the national average. With an OR of 66.0% over the last twelve months, it is still behind the 69.2% reported by the French hotel industry overall but registers 2.7 points growth. This growth in occupancy associated with the increase of prices in the upper category offers 3* properties more latitude in terms of pricing. Another category that is doing well is the 2* category which is returning to a higher growth rate (+6.1%). The economy segment was relatively prudent in 2006 (+1.3%), but this year it is posting rates that are in line with an appeal that is constantly renewed. Supereconomy hotels remain constant in their growth with increases between 4 and 5%.The particularly favorable phase being experienced by hotels on the other side of the Channel for several years is confirming itself. The entire British hotel industry reports the highest occupancy (77.2% over the last twelve months) and the highest rack rates in Europe. In 2007, the rack rate for a single room was 177.1 euros. And this rack rate continues to appreciate in value by 4.3%, for a rate that is clearly higher than that of 2006 (+1.2%). Driven by the development of brands like Premier Travel Inn, Travelodge or Ibis, the economy segment participates actively in overall growth with a 5.4% increase. Upscale hotels post reference prices that are on the rise each year. In 2007, they grew by 5.1%.In Germany, the effect of the World Cup is clear. This world event made it possible for the German hotel industry to rise to another level. While the results of the previous year were boosted by the presence of the World Cup, no outstanding drop could be observed in 2007. The economy and mid-scale segments are down slightly by 0.6% and 0.4%. And with the recovery of economic growth confirmed, upscale hotels are largely taking advantage of the exposure to achieve a broader maneuvering margin for rates. With 4.2% growth of rack rates, this segment pulls global results up. The rack rate across all categories thus shows growth by 2.6% to 133.9 euros.Having run into difficulties caused by overcapacity in the past, Spain’s hotel business is back on the right track. While the drop was significant in 2005 with rack rates down by 1.9%, 2006 had entered a clear recovery (+3.8%). The phenomenon continues in 2007 with a significant acceleration by 3.9% and a rack rate for a single at 121.4 euros. The appeal of the two major cities Madrid and Barcelona, which hosted the America’s Cup like Valencia, encouraged significant growth in upscale hotel prices (+5.2%).

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