London remains one of the most profitable cities across Europe, with hotels generating on average €26,103…
London remains one of the most profitable cities across Europe, with hotels generating on average €26,103 per available room annually, according to a Deloitte report. The HotelBenchmark Profitability Survey, which monitors the performance of over 2,500 hotels across Europe, the Middle East and Asia, reveals that the only cities to achieve higher absolute profitability levels were Milan and Moscow, where hotels reported profitability levels of €31,736 and €27,934 per available room respectively. One of the reasons that London hotels achieve higher profitability levels compared to much of Europe is their ability to successfully convert revenue to profit. On average 43 cents of every Euro is retained as profit, compared to just 30 cents for hotels in the Euro-zone. Notably, it is hotels located in Eastern Europe, where the cost of labour is less expensive, that reported the highest profitability conversion rates. Hotels in Moscow and Prague experienced profitability conversion rates of 49 percent and 48 percent respectively.
Despite London`s competitiveness in Europe, London hotels suffered their third year of falling profitability. In 2003, London hotel profits declined by 13 percent. This compares with an average fall of 12 percent for Europe as a whole.
Commenting on the results Julia Felton, Executive Director of HotelBenchmark at Deloitte said: The fall in UK profitability levels during 2003 was not surprising given the tough trading conditions. What is encouraging is that hotels in the UK remain some of the most efficient in Europe at converting revenue to profit. Trading numbers for the first six months of the year reveal that a recovery is now firmly established after several years of adversity, and as a result we anticipate significant profit growth in 2004.
The profitability conversion rate for all UK hotels was 39 percent which is one of the highest in Europe and compares very favourably with the 29 percent achieved by German hotels. The cost of labour remains one of the key contributing drivers. The UK has one of the lowest payroll to revenue ratios at just 29 percent – 8 percent lower than in Germany. Lower payroll costs in the UK are attributable to less unionisation and generally lower social costs associated with employment.
In the UK there was a marked variation in performance across the major cities. Hotels located at Gatwick airport achieved the highest profitability conversion rate at 45 percent. Hotels in Birmingham and at Heathrow airport also exceeded the 40 percent barrier in terms of profitability conversion. Hotels in Cardiff fared worst with a profitability conversion rate of 33 percent. Hotels in Glasgow retained only €15,904 per available room as profit, reflecting Glasgow`s position as the city with the lowest average room rate in the UK, achieving just €82 per room.
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