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Travel Management

 August 06, 2009
HRG Unveils 2009 Six Month Hotel Survey

 Part 1: Overview

The international hotel market is still feeling the effects of the tough economic climate according to the bi-annual hotel survey conducted by Hogg Robinson Group (HRG), the international corporate travel services company. Most regions are experiencing a decline in hotel room rates in local currency terms, recording average room rate growth of 5% in local currency, with Abu Dhabi as the only exception. With occupancy levels continuing to fall and rates reduced, corporates continue to consolidate their travel policies and negotiate more favourable corporate deals.

Trends Noted By HRG Include:

• Moscow once again tops the chart as the most expensive destination for corporate travellers. However, for the first time since the city entered the HRG hotel survey in 2005, the rate saw a year on year decline (-14%)
• Abu Dhabi is now in second place and is the only city in the survey to have achieved average rate growth of 5% in real terms when measured in local currency
• London has seen a 4% decline in average rate in the first six months of 2009, down from the 3% growth over the same period last year. As a result the city has once again failed to make the top 10, dropping from 16th to 23rd place
• Average rates increased in the Americas by 15% and rose marginally in Western Europe thanks to the strength of the US Dollar and Euro against the pound. However, when exchange rates are factored in, both regions recorded substantial average rate falls
• The top end of the market is holding up well, with the highest average rate increase seen in 5 star hotels (7.7%)

Margaret Bowler, Director of Global Hotel Relations at HRG, says: "The shift in business practices has been substantial and those that adapt well can reap benefits from the unusual trading environment. Hotels are adopting sensible pricing in order to maintain current occupancy levels. Our clients still want to travel and we are helping them find the best and most effective ways to cut costs, identifying alternative travel options to help manage and reduce corporate travel budgets".

The results show that corporates are travelling smarter as they look to control travel costs and maximise their return on travel expenditure. HRG has witnessed corporates continually reviewing and consolidating their programmes to secure lower hotel rates by delivering increased revenues to their preferred suppliers.

In addition to lower pricing, corporates have been able to negotiate added-value items within their rates such as food and beverage discounts, free Wi-Fi access and reduced parking charges. Significantly, last room availability (LRA) is now considered by many as standard, having only been available at a premium prior to the slowdown in the market. However, as hotels are still managing to achieve high occupancy levels in certain cities and at peak times of the year, HRG continues to advise clients to renegotiate favourable deals on a regular basis, ensuring adequate allocation in high volume locations.

In some countries in the Middle East, demand continues to outstrip supply in many cities and the majority of investment at the top end of the market is supporting continued rate increases.

HRG's interim survey is based on a combination of industry intelligence, actual room nights booked and rates paid by its UK clients during January to June 2009 compared to the same period in 2008.

The GBP exchange rate is based on the average for the period 1 January to 30 June 2009 versus the average during the same period in 2008 (data source www.oanda.com)

Part 2: In Depth Analysis

Key European cities have continued to dominate the top 10, but once again Moscow has witnessed the highest average room rate despite an average rate fall when measured in both local currency and GBP. This can largely be attributed to a fall in demand from within the banking and finance sectors, combined with an increase in supply from new openings in recent years.

Moscow may soon lose its title to Abu Dhabi, which entered the top 10 most expensive cities for the first time in the 2008 six month survey. Neighbouring Dubai has continued to suffer from a fall in demand from the banking and finance sector, coupled with an exodus of expatriate and migrant workers due to the slowdown in the country's expansion programme. As a result, it has seen one of the largest rate decreases (24%) over the period.

Mumbai, India's financial hub, was the star performer from the region in 2008, but has since dropped out of the top 10, falling to 16th position, partly as a result of the terrorist attacks that took place last November.

Following substantial growth in 2008, Abu Dhabi has again seen average room rate increases of 38% in GBP, demonstrating demand for hotel accommodation in the city particularly from the banking and finance sectors, as well as ongoing development and refurbishment programmes.

Despite Poland being the only EU country to record GDP growth this year 0.4 percent growth in Q1 2009 in a quarter-on-quarter comparison (Central Statistics Bureau), Warsaw's hotel market has still seen a decline in rates, demonstrating that it is not immune from the decrease in room rates seen across Eastern Europe.

The 14% fall in average rate in Liverpool is due to the fact that hoteliers inflated rates in 2008 as the city enjoyed its status as European Capital of Culture. The number of new openings that catered for this event has meant that demand is now out of kilter with supply.

Without exception, all cities saw average rates decline in both quarters, with half of those surveyed experiencing consecutive double digit falls. Second quarter rates were noticeably lower with an average rate decrease of 16% compared to 10.5% in the first quarter, demonstrating the continued slowing in the global hotel market.

London has seen a slight increase in demand in response to the weakness in sterling, making it a popular destination for companies travelling to Europe for business. London is the only key global city from the above list to see a slower decline in the second quarter compared to quarter one. Major events in London such as Wimbledon and Ascot provided the demand to allow dynamic pricing to push up rates.

Average Room Rate Increases By Region: 2008 v 2009

When measured in GBP, HRG's data showed that - with the exception of the UK and Eastern Europe - the global hotel market has shown modest growth over the last six months, with exchange rates playing a major part. Indeed for the Eurozone, which had an average exchange rate of 1.12 euros to the Pound during the period, UK corporates 'paying' in sterling are still seeing a rise in average rates at hotels in a number of EU countries, despite weak local market conditions.

Eastern Europe has declined substantially over the period reversing a trend that has been in place for a number of years. This is not just as a result of the declines in Moscow but also across a number of cities in the region including Warsaw, Prague and Bucharest.

The newest banking and finance sector hubs in Middle East & West Asia (MEWA) have delivered strong performances, leading to 15.6% regional growth. Cities that have seen average rate increases include Doha (37%), Manama (35%), Riyadh (26%) and Muscat (17%). The limited supply of hotels, primarily dominating the top end of the market, combined with high demand and upgrades of existing hotels in the region, have forced prices upwards. The region is also reflecting the continued strength of the luxury sector.
The Americas continued to report rate growth albeit helped by a relatively strong Dollar exchange rate versus the Pound.

Africa has reported a good performance, signalling its position as a rapidly emerging market enjoying significant investment from multinational organisations engaged in the oil & gas, banking & finance and telecoms industries in particular.

Global Hotel Star Ratings -- 2008 v 2009

Hotels are battling to maintain their share of the corporate market as clients downgrade star ratings. Average rates have decreased in the 3 and 4 star markets as a result.

Surprisingly, the highest average rate increase of 7.7% has been seen in 5 star hotels, suggesting hoteliers are holding out for rates at the expense of lower occupancy levels. This sector has performed particularly well in the MEWA and AsPac regions, where these properties are prevalent and increasing.

HRG's data continues to suggest that overall the budget sector is feeling the competition from the 3 and 4 star hotels. It has been squeezed due to its inability to respond more rapidly and at short notice in terms of flexible pricing to offer more competitive rates to suit market needs. The introduction of new mid-market brands into key European cities continues, benefiting the 4 star sector and providing greater diversity and choice for the business traveller.

All key UK cities recorded decreasing average room rates during the first six months of the year. London fared marginally better than the provincial markets, as visitors enjoyed the weakness of the Pound against the US Dollar and Euro.

Edinburgh, the largest financial centre in the UK outside London, continued to see falling rates potentially as a result of events in the banking and finance sector and also due to new hotel openings both in and on the outskirts of the city. Similarly, Leeds has seen rates fall by 6% on average due to oversupply.

However, aggressive pricing strategies and continued expansion and competition from the 3 star market is likely to result in a decrease in average rates over the next period.

Part 3: Summary

"As forecast at the start of the year in our 2008 annual hotel survey, mid-year results have shown that the international hotel market is continuing to see average hotel rates fall in many regions. The latest figures suggest that the industry has some way to go before rates stabilise. With all key global cities recording rate declines in both quarters, London was the only city where decline slowed marginally", says Margaret Bowler.

"Despite the overall downturn in rates across the board, the industry is doing a great job of restructuring and adapting to the market conditions. The hotel industry appears to have learnt its lesson from the last downturn. They are adjusting pricing structures to meet market expectations and to make rates appear more attractive. In turn, corporates are reviewing and consolidating their programmes to secure lower rates because there is more availability. However, as shown in the global hotel star rating analysis, many hoteliers do not want to throw away their share of the market with significant price cuts so they are taking a sensible long-term strategy to hold out for rates at the expense of lower occupancy levels."

Margaret Bowler concludes: "The market is incredibly difficult to predict, but in light of the economic climate, and consistently unfavourable exchange rates, we know that more businesses are looking at ways to control travel expenditure. At HRG, we advise clients to take advantage of the current conditions and use these to consolidate travel policies and negotiate better rates".

www.hrgworldwide.com