As every year, Deloitte provides a statistical review of hospitality trends, offering an opportunity to reflect on a 2010 marked by the beginning of recovery, but also to project into the major trends that will prevail in 2011.
2010, a beginning of recovery
After the 2009 crisis, everyone hoped that 2010 would be the year of recovery. This hope was partially realized but in different ways depending on categories and geographical areas.
In line with Deloitte’s forecasts from the previous year, the first signs of recovery came from the upscale hotel sector.
The 3 to 5-star hotels, thanks to a more international positioning, thus returned to the path of growth. By the end of 2010, the accommodation revenue of these categories had increased by 5% to 9% compared to 2009.
It was the most upscale establishments – superior 4-star and 5-star – that benefited the most from the international recovery. They experienced a genuine increase in the number of nights and rising average prices.
Conversely, the accommodation revenue of budget and 2-star hotels stagnated in 2010. Hotel occupancy continued to decline, and only the growth in average prices helped maintain the accommodation revenue.
Unsurprisingly, the strongest growth was in Paris and the French Riviera. As a prime international destination, Paris benefited from the appeal of foreign customers to the French capital as well as its highly open international economic network. It should be noted that the activity drop in 2009 had been more severe in Paris, as is often the case during international crises, also explaining this significant rebound.
The Provinces showed a more modest recovery. The 3-star hotel sector was the main beneficiary of the improvement in economic conditions.
2006 – 2010: a recovery that does not erase the impact of the crisis
The start of the recovery recorded in 2010 did not compensate for the lag caused by the crisis. Observing trends over the past 5 years illustrates this with an inverse finding: 3-star budget hotels experienced accommodation revenue growth (RevPAR) while upscale establishments slightly declined.
The phenomenon is even more noticeable when excluding inflation from performance. In constant value, the RevPAR of 4 and 5-star categories dropped by nearly 10%. Standard 4-star establishments and upscale hotels in the Provinces were the most affected. Sensitive to economic conditions and less able to offset customer loss with new segments, these hotels bore the full brunt of the crisis and took longer to find the path to growth again.
Upscale hospitality: cycles with large amplitudes
It’s a cliché: the hospitality industry is subject to cycles, particularly pronounced in the upscale market. This phenomenon puts into perspective the scope of the activity decline for upscale hospitality in recent years. Indeed, when expanding the observation period to the previous major crisis (since 2003), the numbers show a sharp increase: +28% for 4 and 5-star hotels in Paris; +16% in the Provinces for the same categories.
The most upscale establishments are those with the strongest accommodation revenue growth from 2003-2010: Palaces saw their RevPAR grow by nearly 45% compared to only 13% for standard 4-star establishments.
Two underlying trends: heritage conversion and project financing
The context helps understand why two subjects are topical:
1. The conversion of properties into hotels. These are often complex issues but ones that hold value. Many major cities aim to have a prestigious hotel, and there are many projects in this direction: Marseille, Lyon, Nantes, etc.
However, those undertaking projects to convert a building into a hotel know how complex it is. In return, the creation of value can be significant, reflected in terms of image (for the destination, for the operator), room sale prices, and customer loyalty.
2. Hotel financing: the changes in regulation and governance legislation – Basel III or Solvency II – are expected to directly impact the financing or M&A operations in the hospitality sector. At the same time, a new accounting standard (IAS 17) currently under review could have a major impact on the financial statements of “Asset Light” operators.
It is legitimate to wonder if all these new regulations will be sufficient to support and contribute to a new cycle of healthy and virtuous growth.
