High city costs hit hotel profit

The high cost of running a hotel has eaten into profit margins for the sector despite occupancy and room revenues being on the rise, according to industry experts.

The high cost of running a hotel has eaten into profit margins for the sector despite occupancy and room revenues being on the rise, according to industry experts.

In the Horwath HTL Australia annual Survey of Operations report, it says Australian hotel profit margins have failed to grow for five years.

John Smith, the chief executive of Horwath HTL Australia, said the findings were based on trading results in 2012 from more than 60 mostly city-based five-star, four-star and three-star hotels.

"Survey-wide occupancy in 2012 reached an impressive 78 per cent, the same level as reported in the 2007 Survey of Operations, before the onset of the global financial crisis," Mr Smith said.

"Yet despite the combined effect of both high occupancies and strong room-rate growth, gross operating profit as a percentage of revenue declined marginally over the period, from 36 per cent in 2007 to 34 per cent in 2012."

Mr Smith said the findings were disappointing, but not surprising given the high cost of wages and administration in Australia.

Developments and refurbishments will also put pressure on the sector in coming years.

"The result highlights that Australia now has some of the most expensive cities in the world for hotels to operate in" he said.

"Whilst in dollar terms the recent profit growth is good news for the new wave of investors that have been entering the Australian hotel market," Mr Smith said, "the survey findings highlight the challenges ahead in extracting further value growth."

This comes as the Singaporean M&L Hospitality group moves ahead after development approval for the $160 million upgrade of the Four Points by Sheraton Sydney in Darling Harbour.

The M&L chairman, Michael Kum, said recently he may list on the Australian market as his company moves to bolster its presence in the Asian region.

In Melbourne, the supply has also increased in recent years.

According to Colliers International, the annualised average room rate across all star grades in the Melbourne CBD increased from $172.41 to $174.81, growing by 1.4 per cent over the year to June 2013.

Over the same period, occupancy rates fell by 1.4 per cent to 78 per cent while revenue per available room declined marginally (0.1 per cent) to $136.35 a room over the 12 months to June 2013.

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