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Analyses

A July full of contrast for Europe’s hotels

With a RevPAR up by just 1.7% in July, the results of the hotel industry look fairly disappointing. Effectively some were counting on a more straightforward recovery after a month of June that posted a RevPAR up by 5.6%. But this month the OR are very stable (+0.5 points) whereas the average daily rates are very close to those of the previous year (+1.0%). Major destinations are encountering increasing levels of competition.

Whereas the month of July 2003 proved to be very mediocre for hotels belonging to European chains (a drop in occupancy rates by 0.9 point and average daily rates by 4.1% led to a 5.4% slump in the RevPAR with respect to 2002), sector professionals undoubtedly reckoned upon a more straightforward recovery for the beginning of the summer season 2004. Results from the month of July show improvement in the RevPAR by 1.7%, which contrasts with the 5.6% growth recorded in June but nonetheless indicates business is returning to normal levels.Results by country suggest that the situations are very heterogeneous. The major traditional tourist destinations of France, Spain and Italy were not in fine fettle at the beginning of the season. Their RevPARs were down respectively by 1.1%, 8.5% and 1.4%. They are even the only countries in the European Union that posted drops in occupancy rate in July. There are several reasons for this. Spain’s offer grew significantly in recent years. In France, the climate was not very appealing along the shore, while some holiday goers feared a heat wave like the one that ravaged the country last year. Supply markets did not provide the volumes of clientele expected. This is the case for American clientele, as we saw. It is also the case for European clientele. The lifelessness of Germany’s economy in particular incited German holidaygoers to favour less expensive destinations in Eastern Europe or in the Mediterranean (Croatia, Maghreb). The appearance of new destinations that entered into competition with the major tourist countries is clear. The United Kingdom, Nordic countries as well as countries in Eastern Europe came out with very significant growth in their RevPARs thanks to the sustained evolutions in their occupancy rates. Mr Yanev, General Manager of the hotel Quality Inn Hampstead in London confirms: “Summer 2004 will have been very satisfactory in London, just like the rest of the year. Business is truly good this year. There are no particular events in town, just a lot more tourists than last year. I no longer have the impression that special promotional operations are what has influenced departures for London. Half of our clientele is national. The other half is mostly European and American. In terms of Europe, we are seeing more and more Scandinavians, French and Germans.” The same enthusiasm reached Eastern Europe. Andrew Farnfield, Director Sales & Marketing at the Four Seasons Hotel Prague confides: “2004 surpasses our expectations. Prague is becoming more and more popular as a leisure destination. Even if the supply is growing from one year to the next, the demand is following suit.” The challenge is on for Old Europe!The main surprise for this month of July comes perhaps from occupancy rate levels that are very stable with respect to the previous year (+0.5 points only). All categories had difficulty with occupancy. This is particularly the case for budget segments that are having difficulty absorbing the growth of the segments’ supply in recent years. Although the average occupancy of these properties remains at very satisfactory levels, 80.6% in 0* and 77.0% in 1*, evolutions from one year to the next are negative (respectively –1.5 points and –1.1 point). Upscale hotels experienced a weak month with occupancy rates identical to those of the previous year. Only the 2* and 3* categories finally see their occupancy levels progress from one year to the next, by 0.4 points in 2* and by 1.4 points in 3*. In fact properties from the 2* segment are the ones that assured the clearest evolution of the RevPAR (+4.3%) thanks to significant growth in average daily rates. The budget categories also post good progress of the RevPAR through growth in average daily rates that compensate for the drop in occupancy rates. The upscale hotel industry once again shows improvement of its RevPAR in July, also thanks to intervention on the average daily rates. Margins for manipulation are nonetheless limited for 4* properties. Growth of average daily rates by 1.2% and of RevPARs by 1.3% are still far from compensating the slumps recorded in July 2003 when the average daily rates of these properties dropped by 5.0%, bringing RevPARs down by 5.8%. The general belief is that the return of clientele from outside Europe, particularly North America, was not as great as expected and many observers noticed that these consumers’ budgets were also smaller with respect to previous years, due to the Euro that reached historic highs with respect to the dollar in these last months. Jean-Louis Leimbacher, General manager of the Hôtel du Palais at Biarritz confides: “Our July 2004 was identical to July 2003 with an occupancy rate at 78 % including 65% foreigners. American clientele is up, as is Spanish clientele. But the English are down because a Ryanair flight serving Biarritz was suppressed. Nonetheless, Americans, who once occupied 25% of rooms prior to September 11, now account for only 11% of rooms. Business is making a slow comeback, but it isn’t easy with a weak dollar.” In this context 3* hotels post only moderate growth in their RevPARs. As Olivier Ries, Director of the hotel Comfort Inn Erasme in Brussels, explains, “We are obliged to stay in line with the competition. The pressure on prices is such that hoteliers are adjusting their rates downwards across all categories. Thus clients go stay at a 4*hotel for the price of a 3*, for example. In July and August, it’s not hard to find a room in Brussels, so tourists don’t hesitate to bargain.”The results across the last 12 months nonetheless temper this uncertain impression. At the end of July, the uptrend continued and the average RevPAR in European hotels grew by 2.1%. It is enough to go back to the beginning of this year to find negative evolutions of the RevPAR in the European Union. This improvement of the indicators is the result of a stabilisation of the occupancy rates, up by 0.8 point on the previous period, and average daily rates, up by 0.8%. In terms of RevPAR, no category is truly in the red since all segments saw their revenue per available room grow. We will nonetheless observe the difficulties encountered by the 3* hotel industry in order to stabilise its average daily rate, still down by 1% across 12 months.

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