Hotels feel the squeeze from low capacity utilisation and pricing

The credit crunch is started to bite hard in the hotel industry, even though the weakness of the Pound makes it relatively cheaper for tourists to stay in the UK.

Hotels across the UK are set to suffer on an ever larger scale than was initially expected in 2009, with revenue per available room (revpar) set to fall by nearly 19%.

A market research report PricewaterhouseCoopers (PwC) forecasts an overall drop overall drop in revpar of 18.9% - twice the rate expected when PwC last made their forecasts for the UK hotel market in 2009 (back in November 2008).

London hotels are expected to suffer particularly badly with a 14.2% decline in achieved room rates (to £100.31), and a 13.3% drop in occupancy, to around 69%, driving a massive 25.6% fall in revpar.

Hotels outside London are also predicted to suffer severely, with revpar forecast to fall by 11.6% cent in 2009, having already seen three quarters of revpar decline in 2008.

What is Revpar? Revpar is short for “revenue per available room”. Revpar refers to the revenue generating effectiveness of a hotel property. It is calculated by taking the total bedroom revenue for the period divided by the total available rooms during the period.

To take an example: let’s look at Tutor2u Towers

Tutor2u Towers is a hotel with 100 rooms that achieve an average room rate (the rate the hotel guest actually pays) of £75 per night. Lets assume that 80% of those rooms are sold during a month (i.e. 80% capacity utilisation).

What is the total bedroom revenue of the hotel? It is £186,000 [100 x 80% x 31 days x £75].
The total available rooms during the period = 3,100 [31 x 100]

So Revpar = £186,000 / 3,100 = £60