After the brutal drop in revenues of European properties, a new cycle is underway. MKG Hospitality’s annual study of rack rates in 2010, which will be published this month, has just confirmed the return to activity. Europe’s hotel industry has come back up for air and, consequently, has a wider maneuvering margin in terms of rates. Although certain countries are still under pressure… this complete study offers analyses of rate positioning by hotel chain, price differential according to category and country, relationship between average daily rates and rack rates, the change in these prices over time, an analysis in function of peak and off-peak seasons, monthly changes in prices by major European destination… Here is a sampling.
The moroseness that reigned last year, evidenced by sharp drops in rack rates for the 3* and 4* segments, progressively faded over the year 2010. As the return of Business clientele confirmed itself, European hoteliers progressively proved to be more entrepreneurial. The comparative analysis of two periods of strong activity – June and October 2010 – shows that once the increase in demand is confirmed, hoteliers were able to begin the forward march of their pricing engines. The keys to negotiations are now out of the hands of buyers, which had the controls in recent years. And while promotions are still sought after, especially by leisure clientele, growth in rack rates (*) makes these discounts less penalizing for the average daily rates of properties.Logically harder hit by the shrinking demand from business clientele, upscale properties show stronger growth in prices between the pre- and post-summer season. Sweden wins the award with 26.7% growth. In Stockholm, the rack rate for the 4* segment went from 189 to 234 euros. As major economic centers and international hubs, capitals were the first to benefit from the attenuated effects of the economic crisis. In Paris, London, Athens, Brussels as well as Warsaw and Budapest, the upmarket hotel segment perked up again with increasing occupancy rates, allowing for double-digit growth of rack rates. The best established destinations in European such as Geneva, Paris and London saw their upscale segment erase a two year slump with a return to pre-crisis rack rates. But not all European countries share this situation. For many of them, pressure remains high, limiting ambitions to raise prices. And for some, prudence remains the byword, especially in Italy, the Czech Republic and Slovakia, three countries that still have not achieved a positive bottom line. Several reasons explain why hoteliers were unable to benefit from the renewed activity: an abundant offer forcing professionals to sustain occupancy by adopting more moderate rates as in Prague or Berlin; reliance on British and American clientele who took more time to return to business travel, slowing the growth of rack rates as much as in Amsterdam; the high-price-near 60% average occupancy combination that prevents hoteliers from being aggressive as may be seen in Italy.In several countries, the midscale hotel segment echoed the change in the upscale segment, but with lesser amplitude. This is the case in countries where the recovery proves to be more solid, especially in France, the United Kingdom and Belgium. In all these countries, growth in rack rates on the midscale is between 4% and 7% whereas on the 4*, the increase surpassed 10%. Sweden stands out with equally impressive growth: 20% more growth on the 3* than on the 4*. Inversely, but in the same line of thought in which the midscale patterns its strategy after the upscale segment, the drop is less important for 3* in Italy (-0.5%) than that observed on the 4* (-3.0%).Other countries show significant differences, with diametrically opposed strategies for mid and upscale hoteliers. Greece shows a great divide between +26.0% progress on the 4* and a -17.7% drop on the 3* segments. On a smaller scale, the same is true in Portugal with a 3.2% increase on the 4* and a -9.9% drop on the 3* or in the Netherlands (+3.3% for the 4* and -2.3% for the 3*). On these markets the return of international clientele benefits upscale properties while the midscale hotel segment, more reliant on domestic clientele, remains more prudent, even adopting a more aggressive strategy to maintain or win market shares.Its domestic character and its tight-budget pricing allowed the economy hotel segment to escape the great sell-off in 2009. Countries where the supply is most developed – France, Germany, United Kingdom – had even posted slight progress, by around 3%. This year they proved to be even more ambitious. Despite strong development in its 2* supply, the United Kingdom showed strong growth by +9.1%. France with +2.5% and Germany with + 4.2% did the same. Unfortunately, the same is not true for all European hoteliers. Often saw-toothed, with no clear trend that stands out, the change in occupancy does not enable a uniform strategy. This lack of visibility combined with domestic clientele with purchasing power especially infirmed by the economic crisis heavily influences pricing, for example in Ireland, Portugal or Spain, where the unemployment rate is up, as well as in Eastern European countries. In all these countries, the rack rate continues to shrink, particularly sharply in Portugal and the Czech Republic, where 2* properties show the same drop by -11.2%.
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