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Q1 Turnover for hotel accommodations up by 6% in the European Union

During the first semester of 2005, the hotel sector confirmed its recovery. At the end of June, the occupancy rate rose by 0.9 points…

During the first semester of 2005, the hotel sector confirmed its recovery. At the end of June, the occupancy rate rose by 0.9 points on the continent. The return of American and Asian clientele was beneficial. On the one hand, sustained economic growth, in the United States in particular (in 2005, the OECD forecasts growth in the volume of the GNP by 3.6%), provided the financial means necessary for a return to international travel. On the other hand, as the various crises that hit Asia and the United States are left behind, tourists are more inclined to air travel.

In Europe the economic recovery is still unstable in comparison with business in North America or Asia. This is particularly true for economies in the Euro zone, which are suffering once again from the Euro’s high exchange rate with the dollar (at the beginning of 2000, the dollar was at the same value as the euro, while today the euro is worth around 1.25 dollars). For 2005, OECD has forecast growth in the volume of GNP by 1.2%, bringing it closer to the 3.6% growth expected in the United States.

Within a context of economic growth that is still limited, average daily rates show moderate growth (+1.2%). With an estimated growth in supply at a little more than 3%, turnover for Europe’s hotel industry continues to grow during the first semester: +6% versus the first semester of 2004.

But while occupancy rates are up for European countries across the board, with exception to Italy, the evolutionary trends for average daily rates vary from one country to the next. This observation conveys the different situations in the recovery cycle that began in recent months.

In France, an acceleration in growth in-line with MKG Consulting’s forecasts

Thanks to a very good month of June (+4.2% growth in RevPAR), the first semester of the year 2005 concluded with growth in the RevPAR by 2.9%. The 4* segment recorded the highest increase in the RevPAR, as a result of significant growth (+1.4 points) in occupancy rates combined with a 1.3% increase average daily rates.

Parisian hotels in particular benefited from this renewal of activity. With the organisation of major events, such as the Air Show at Bourget, business clientele had a higher presence at roll call. At the same time, international leisure clientele, American in particular, is making a return to France this year.

Corporate chain hotel results per category in France

Cumulated results on 6 months as of end of June 2005 – Definitive data

Source: MKG Consulting database – official supplier of chain hotel statistics – August 2005

Average daily rates and RevPAR expressed in euros incl. tax

The other hotel categories are no exception. The economy hotel sector in particular has shown constant resistance in recent years (despite sustained growth in supply) and continues to report very good results. Thus, in five years we have seen only one month with a drop in its RevPAR!

After an encouraging first semester, the summer season looks satisfactory for France, with the French Riviera looking like it will come out better than the Atlantic coast. In July, growth of the global RevPAR is already acquired at +3.9%, whereas an early estimate leaves room to believe in an August with an even better tally: around +5% growth in the RevPAR.

These indications are in line with the MKG Consulting’s forecast at the end of 2004, for the entire year 2005 (+3% to +5%). These results should confirm the scenario forecasted by MKG Consulting: acceleration in the growth of average daily rates following the turnaround in occupancy rates registered in 2004.

The United Kingdom is in the lead in Europe’s hotel industry, the other major European destinations are having greater difficulties

For the first semester 2005, hotels in the United Kingdom maintained an excellent momentum with average growth in the RevPAR of 5.9%. The United Kingdom began its recovery phase earlier, and the very strong demand implies particularly high average occupancy rates. After an already exceptional year in 2004, with growth in average daily rates (+6.4% over the year), the margin available for increasing room rates could nonetheless shrink in the coming months as these have already attained high levels (nearly 120 euros). This is particularly possible since economic growth has been setting the rythm since the middle of 2004.

The bombings that shook London did not have short-term catastrophic impact on British hotels since the July’s RevPAR in the United Kingdom showed only a 1.9% drop, with occupancy rates that continue to hover around 78%! While these events appear to have had relatively few consequences in terms of cancellations, as most travel had been planned prior to the attacks. It will nonetheless be necessary to keep an eye out in the months to come for eventual signs of wariness about travel in the British capital, particularly on the behalf of leisure clientele.

After a delicate period, hoteliers in the Benelux regained the road to growth during the first semester. In the Netherlands, the turnaround for occupancy rates made it possible to ensure the growth in the RevPAR (+2.2%). This trend is confirmed by an excellent July when average daily rates and occupancy rates leapt ahead with a RevPAR up by 8.5%. Activity with the Business segment is sustained in this country where, like in Germany, there is no hesitation to optimise the RevPAR by increasing rates significantly, generally on the business segments, during trade fair or conference seasons for example.

Germany’s hotel sector is also very dependent on trade fairs and exhibitions, and activity with the business segment in the first semester saw its peaks and valleys. In April 2005, German hoteliers reported the biggest increase in the last 5 years (+22.5% increase in the RevPAR), before a month of May that was decidedly worse (-17.1%). On the first 6 months of the year, the need to increase some of the lowest occupancy rates in Europe led to rate policies that aimed to fill vacancies through aggressive promotions. The RevPARs, meanwhile, grew only slightly with respect to the first semester 2004 (+1.7%).

Furthermore the development of Germany’s room supply also slows the growth of occupancy and average daily rates. Within such a context, the summer season does not look so favourable in Germany. In fact, in the month of July hoteliers reported a RevPAR down by 0.3% with respect to the same period last year.

Spain experienced the same difficulties linked to the expansion of its hotel supply. The country had closed the year 2004 with particularly bad results and a 7.3% drop in RevPARs. With rapid growth in its supply, average daily rates are in fact still following a downtrend, and this slump for the RevPAR is still a reality. Nonetheless, occupancy rates became more stable over the first semester (+0.2 points), which may indicate the beginning of a turnaround in the situation. In July 2005, the RevPAR became stable, which appears to confirm the shift in the trend that began in recent months.

In Italy, the first semester is marked by a RevPAR that is relatively stable, down by 0.5% in relation to the first semester 2004. This result masks situations that are variable from one major Italian city to the next. Rome, unlike Milan for example, does well in a hotel landscape that is otherwise less favourable. The development of business and leisure tourism sustains the growth of business results in the Italian capital.

Two points may be highlighted regarding the results of the hotel industry for the first half of the year 2005 that incite more optimism as the fall season takes shape:

A new trend is developing in the behaviour of travellers as current affairs continue to accumulate dramatic events: tourists from all around the world – business and leisure alike – are resisting panic in the climate of uncertainty brought on by political and health crises, terrorist activities or, as we have seen in recent weeks, the wave of accidents in the worldwide airline industry.

A second point that must be outlined concerns the solidity of the economy and super-economy hotel markets. Recent operations undertaken by investors in the hotel sector are proof of this.

In recent months, Whitbread, which until now operated Marriott hotels in the United Kingdom, made a firm break with mid- and upscale hotels to dedicate itself to the development of its brand Premier Travel Inn. Simultaneously, members of the Taittinger family, CNP (Groupe Albert Frere) and Societe Fonciere, Financiere et de Participations (FFP) which own more than 65% of capital in the Taittinger Group, have agreed to sell their shares in the Group to Starwood Capital (for 2.8 billion euros) which should become the number two portfolio in France’s economy hotel sector. This first semester also saw the Californian investor Colony Capital invest 1 billion euros in Accor. The French group is the European leader across all categories but it is also a leader in economy hotels in France and in Europe. In this regard, France, where economy hotels belonging to corporate hotel chains are well developed, is proving to be particularly interesting for world players on the sector.

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