GCC hotels report declining profitability in first half of 2016

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by Sophia Soltani | Published 4 years ago

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According to a new report from STR, hotels across the GCC have been experiencing a downturn in performance and overall profitability that correlates with a decline in oil prices.

Through the first half of 2016, the GCC hotel industry reported a 10.3% Y-o-Y decrease in the key hotel performance indicator RevPAR. According to Statista, the average price of OPEC crude oil in 2016 is down 27.0% to $36.13 from the average price per barrel in 2015. Capture

STR analysts revealed that RevPAR and gross operating profit  per available room, the key hotel profitability indicator, have trended similarly to the price of crude oil during the past decade.

According to Statista, the price of OPEC crude oil averaged $96.29 per barrel in 2014 but plummeted 48.6% to an average price of $49.49 in 2015. Over the same time period, corporate business in GCC hotels suffered with Y-o-Y declines in room revenue (-3.1%), food & beverage (-3.8%) and other operated departments (-5.8%), according to STR’s 2015 Global Profitability Review.  Overall, total revenue for GCC hotels was down 3.0% in 2015.

“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,” said Philip Wooller, STR’s area director for the Middle East and Africa. “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.”

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