Sustained low oil prices negatively impacting GCC hotel sector

Hotels in Gulf Cooperation Council (GCC) countries have experienced a downturn in performance and overall profitability that correlates with a decline in oil prices, according to new data and analysis from STR. 

Doha’s hotel sector reported a 15% slide in occupancy YoY in H1. 2016.
Doha’s hotel sector reported a 15% slide in occupancy YoY in H1. 2016.

Through the first half of 2016, the GCC hotel industry reported a 10.3% year-over-year decrease in revenue per available room (RevPAR). According to Statista, the average price of OPEC crude oil in 2016 is down 27.0% (to US$36.13) from the average price per barrel in 2015.

STR analysts note that RevPAR and gross operating profit per available room (GOPPAR), 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 US$96.29 per barrel in 2014 but plummeted 48.6% to an average price of US$49.49 in 2015. Over the same time period, corporate business in GCC hotels suffered with year-over-year 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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