Dubai: Hotels in the Gulf Cooperation Council (GCC) countries suffered drops in profitability in the first half of this year, as oil prices decline, according to a new report from global research firm STR.
Revenue per available room (RevPAR — an industry measure of occupancy and rates) of hotels in the region dropped 10.3 per cent year-on-year in the first six months of 2016.
STR analysts pointed out that RevPAR and gross operating profit per available room (GOPPAR), an indicator of hotel profitability, have trended similarly to the price of crude oil during the past decade.
“Since many of the key cities in the Middle East rely heavily on corporate travel for events and conventions, it is not strange to see overall profitability declines partially as a result of the drop in oil price,” Philip Wooller, STR’s area director for the Middle East and Africa, said in a statement.
“When you couple that with strong supply growth in the majority of these markets, the downward trend is amplified. At the market level, however, Dubai still maintains one of the highest GOPPAR levels in the world,” he added.
Corporate business
Citing data from Statista, STR said the price of Opec (Organisation of the Petroleum Exporting Countries) crude oil was on average $96.29 (Dh353.38) per barrel in 2014 but plummeted 48.6 per cent to an average price of $49.49 in 2015. Over the same time period, corporate business in GCC hotels suffered with year-on-year declines in room revenue by 3.1 per cent, food and beverage by 3.8 per cent and other operated departments by 5.8 per cent, according to STR data. Overall, total revenue for GCC hotels was down 3 per cent in 2015.
In June, Dubai hotels’ profit conversion fell to 6 per cent of total revenue, as both Ramadan and the start of the peak holiday period contributed to a decline in demand, according to data from another research firm, HotStats.
Dubai attracts fewer tourists in the summer due to the hot weather and a trend for residents to seek cooler climes. However, the volume of demand in June has been in constant decline in recent years, with occupancy falling from 67.4 per cent in 2015 to 51.2 per cent in 2016.
The 16.3 per cent year-on-year drop in occupancy in the emirate in June and the 9.2 per cent decline in average room rates resulted in a 31.1 per cent decrease in RevPAR to $88.3.
Total revenue per available room and GOPPAR were at their lowest level in June since July 2014, falling year-on-year to $186.68 and $11.77, respectively.