London's hoteliers have continued a 12-year-long streak in increasing revenue per available room (RevPAR) according to new research by HotStats.
The research company's Benchmakring Beyond survey looked at the performance of the British capital's hotels in the period from 2000 to 2015 and show that RevPar has increased by 37% over the past 15 years, despite capacity in London growing by 50,000 rooms over the same period.
The chart below shows the contribution of various elements of revenue to the total. It shows that last year, 75% of revenue came from rooms.
The figures appear to show that London's hoteliers have enjoyed a stunning decade. While the situation looks healthy, it is important to look beyond RevPAR.
A measure called Net RevPAR, calculated by deducting rooms selling costs (ie rooms cost of sales + sales and marketing expenses) from RevPAR shows better how acquisition costs affect absolute revenue.
The chart below shows how selling costs have sharply increased since 2000. The growth of online travel agents has largely driven this increase — up 900% in London since 2000.
The cost of sales has grown sharply, driven by increased commission costs from online travel agents. Yet other sales and marketing costs have also risen fast, growing by 230% since 2015.
The company says the increases are driven by two key factors.
"In an attempt to keep pace with OTAs, brands are paying more to have a presence across a growing number of marketing platforms. However, with Priceline (parent brand of Booking.com) and Expedia spending close to $2 billion per year on marketing, this expenditure may be fruitless."
It added, "Brands are attempting to recapture market share from OTAs by incentivising new and returning members to join their loyalty schemes. Discounting and/or additional amenities used as incentives will come at a higher cost to hotels."
For hotel buyers, all this translates into higher costs and staying in London shows no signs of getting any cheaper.