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Rebound confirmed in November for Europe’s hotel industry

The RevPAR of Europe’s hotel industry progresses by 2.7% in November 2004 thanks to a double leverage effect, occupancy rate and average daily rates.The cumulated RevPAR on 12 months is up by 4%.Aside from the 0* segment whose occupancy rate is down, OR and average daily rates alike are up across the year for all categories.

After a year 2003 that was weak, 2004 should close for European hoteliers with a RevPAR that is generally on an uptrend. In November, occupancy rates and average daily rates of each of the categories were up. The grand prize goes to economic 2* hotels where the RevPAR is up by 8.1% thanks to a 1.5 point increase in occupancy rate and an improvement in the average daily rate by 5.7%. This result largely compensates for the 3.1% drop in 2003. In general, the economy and super economy segments are coming out well. 0* and 1* categories in fact post increases in their RevPARs by 5.4% and 6.2% respectively. At the same time, 3* and 4* the segments are progressing more slowly, posting a RevPAR that is up by 2.2% in 3* and by 1.6% for 4* hotels.Will Hilton continue to invest in this area? An Internet site is not static. We will add new functions. Hilton will invest in the two to three years to come. As Internet represents an increasingly significant share of our sales, and it is close to reaching the critical mass, the vector is strategic.At the end of November, the 12 month balance for Europe’s hotel sector — which will, unless there is an sudden change of excep tional result in December, post results very close to an evolution that will ratify the fiscal year 2004 — shows improvement RevPAR by 4.0% over the year 2003. This result is further to the parallel improvement of global occupancy rates and average daily rates. Nonetheless the trends are not identical from category to category. In fact, it may be observed that the occupancy rate of super-economic segments are very stable in 1* and still on a downtrend for 0*, confirming in 2004, the correction begun last year (-0.6 points for 0* and 0.1 points for 1* in 2004 and respectively – 2.8 points and –1.7 points in 2003). The sustained progress of average daily rates nonetheless allows these segments to post a RevPAR that continues to rise. The 2* segment instead succeeds in affirming the occupancy rates a bit better during the year 2004 to close the year with a 0.6 point increase. The RevPAR for economy hotels is thus seeing growth (+4.5%) essentially supported by the growth of average daily rates (+3.5%).Among the trends that are the most encouraging for the year 2004 may be seen the righting of business results in the upscale hotel industry. The cumulated RevPAR at the end of November on the 4* segment is thus showing a clear improvement by 4.8%. Once the delicate period in which hoteliers tried to stabilise the drops in occupancy through aggressive commercial and marketing policies, was over the righting of occupancy levels made it possible to renew growth of average daily rates. This year should close with an increase in occupancy rates by nearly 1.5 points alongside an increase in average daily rates by more than 2.4%. While the levels of the RevPAR are still far from what 4* hoteliers were used to seeing until the peak in the year 2000 when they were familiar with 98 euros, the return to a positive evolution this year remains very good news for sector operators. Meanwhile, the recovery will have been a little bit slower to develop for the 3* segment which posts a RevPAR up by 2.4% at the end of November. Occupancy levels, which are very close to those of the 2* segment in 2000, tended to leave behind since 2001. Since then, the erosion of occupancy rates was only stopped thanks to a powerful moderation of rates. It is on the 3* segment that we are seeing weakest evolution of average daily rates at the end of November. The mid-range hotel industry until recently continued to withstand competition from both 2* properties, which proves to be a credible alternative in a period of tight budgets, and 4* properties, whose commercial dynamism and promotional rates seduced a share of the clientele that usually stays at mid-range properties.If on the whole of Europe the trend has been towards improvement, the recovery, albeit moderate but real, that began in 2004 overshadows different situations from one country to the next. Austria and the United Kingdom post the strongest growth in their RevPAR, by 6.2% and 8.9% respectively across the last 12 months. It may be observed that these countries are among those that were touched the earliest and strongest by the business slump in 2001. The reaction of hoteliers and tourism institutions, which multiplied the communications and promotional actions of destinations, was in line with the difficulties at hand. With the return to economic growth that is stimulating for the hotel sector, with a heightened visibility in terms of tourism thanks to advertising campaigns by organisations in charge of tourism, the hotel industry’s business indexes are once again on an uptrend. Hans-Michael Leise, General manager of Accor’s hotel division in Austria confirms this renewal: “All of Austria had a very good November, with an occupancy rate of 75% in Vienna and 72% in the provinces. These results are up by a few points over last year. Our RevPAR is up by 9% on the first eleven months of 2004 whereas Austria’s hotel industry has been doing well since the second semester of 2003. Austria’s economy is in clearly better health than it German neighbour. Moreover, Austria, which used to be in the East of the European Union is now at the centre of Europe since the recent expansion, which should lead to favourable results”. Belgium and the Netherlands were also among those countries that posted a precocious drop in hotel industry indicators in 2001, due in particular to the small size of domestic markets and the hotel business’ high sensitivity to the evolutions of international business clientele, a segment that has been particularly affected in the mast months. At this close of the year 2004, Belgium and the Netherlands post cumulated occupancy rates that are slightly higher than those of last year. This result is nonetheless obtained against average daily rates that are struggling to regain their previous levels. The RevPARs have reached a balance with respect to the year 2003 (+0.8% in Belgium and 0.5% in the Netherlands). Results will be similar in Italy where average daily rates are having difficulty returning to their previous levels whereas occupancy rates are very stable with respect to the previous year. Palmiro Noschese, General manager of the hotel Mélia Roma Aurelia confirms: “The trend in 2004 shows a drop in average daily rates but growth in occupancy rates and the RevPAR. This situation finds its primary explanation in a market that is very competitive in which Internet is increasingly becoming an aggressive sales channel. It corresponds to a different behaviour for booking on the behalf of consumers.”Among the great European countries, Germany will constitute one of the best performances in the year 2004 with growth in the RevPAR at the end of November by 4.1%, largely backed by the rise in occupancy rate (+2.4 points). Erik Van Kessel, Managing Director NH Hotels in Germany observes: “November 2004 was clearly better than the previous year. Frankfurt is stable, Munich is up and Düsseldorf posted results that are much better than in 2003. But it is Berlin that wins the award for improvement. The efficient marketing initiative “Berlin Winter Magic” drew much Leisure clientele on weekends. Average daily rates are up.” In general, the chain hotel industry on the other side of the Rhine is characterised by occupancy rate levels that are generally weak with significant differences between the week and weekend, drops in occupancy and a major dependence on the business clientele. Seeing a return of business to German properties, in parallel to the progressive improvement of the economic situation, the goal of rate strategies is also to grow this type of clientele through more agressive commercial policies. Also, the moderate evolution or rates observed this year (-0.1% for the average daily rate) is also in keeping with this trend. Another element that explains the difficulties inherent to increasing rates: “we sill have an overcapacity in all the large cities in the country,” analyses Erik Van Kessel. In this European concert, France posts results that are slightly lower than the European average. The RevPAR is up by 2.9%.Also, in most countries, the year 2004 will undoubtedly remain the year for a rebound. Among the positive elements, along with the slow improvement of economic growth, business clientele are making a return to hotels. But difficulties subsist. The necessary adaptations are often translated by a major moderation of rates. In many countries such as Spain, Germany or Italy, the significant growth in recent years is often an argument used to justify the difficulties involved in increasing prices in an environment where competition is stronger. Furthermore, the development of Internet sales is meeting with success among consumers who are quite decided to benefit from the competition between brands and also between destinations. The corollary is once again increased competitive pressure weighing down prices. We have thus been able to observe the difficulties encountered this summer by hotel sectors at major tourist destinations, France, Spain or Italy. Some macro-economic factors also reduced the strength of the recovery. Exchange rates also pull down the volumes of nights purchased by clientele whose buying power is represented in dollars. The increase in the price of petrol plays doubly against the international hotel industry. First of all, when airlines transpose it on their rates, it increases the cost of the transportation that carries tourists. Then, it penalises national economies and limits the vigour of the economic recovery. In this context, European hoteliers turned to more domestic clientele niches. As Cees Van Westenbrugge, General manager of the Best Western Park Hotel de Bruxelles, resumes: “This year we welcomed fewer Non- European clients, most likely because of the weakness of the dollar versus the euro. This absence was compensated by a European clientele that is on the rise. 2004 was an average year that was slightly better with respect to 2003 which was a bad year.” Finally the maturity posted by operators in their capacity to manage the sector’s mutations in recent months, makes it possible to await the year 2005 with reasonable optimism. Cees Van Westenbrugge sees the first positive signs in it: “For 2005, the first reservations posted are higher with respect to last year, which is encouraging”…Erik Van Kessel, managing director NH for Germany What is this year’s trend for Germany? This year we have observed an increase in Spanish clientele, thanks to our brand. The year 2004 was much better than 2003 on the whole. We will post a 10% increase in the RevPAR thanks to an increase in the OR and ADR. There are two explications for this: first, a German economy with improved health. Then the brand NH is beginning to find its position on the German market following the rebranding of Astron hotels. We were starting at zero and now the brand NH is better known than Astron. We also changed the organisation of our Sales division by centralising it, and this is beginning to pay off.What do you hope for in the future? We expect to experience a few more difficult years due to over-capacity. Rates are still lower than in the rest of Europe. And it won’t be easy to raise them. The German market is mostly domestic– 85% of our clientele. And German clientele are cautious spenders. It is thus very important to be better than our competitors. Only the strongest will survive. In 2005, we are expecting a slight increase in the RevPAR, thanks to an occupancy rate that is up.Jerome Wise, Channel Marketing Director for Hilton Have you seen an increase in the number of Internet bookings in 2004? This year there has been a significant increase - +70% - in bookings via our website. And we anticipate a 50% increase for next year. We are very proactive about positioning our brands’ websites through advertisements and online partnerships. Our strategy is to make our Internet site our preferred booking vector.Who books via Internet? There is no very precise category of clientele that books via our website. The customer mix is close to that of our hotels: 70% Business and 30% Leisure. Our site is not just a booking tool. It is a tool for information and communication regarding our hotel product, our destinations. The percentage of clients that uses this channel for reservations continues to be low.Will Hilton continue to invest in this area? An Internet site is not static. We will add new functions. Hilton will invest in the two to three years to come. As Internet represents an increasingly significant share of our sales, and it is close to reaching the critical mass, the vector is strategic.

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