hrg six month hotel survey 2010 050810

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FromHogg Robinson Group

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5 August 2010

HRG unveils 2010 six month hotel survey

Part 1: Overview

The international hotel industry has shown signs of recovery in the first half of 2010 according to the

bi-annual hotel survey conducted by Hogg Robinson Group (HRG), the world class corporate travel

services company. Although the survey reveals a fragmented global picture, the hotel market in

Europe and the US appears to be stabilising, as rates are either flat or only marginally down. In

addition 12 of the 50 cities surveyed achieved a year on year rate increase when measured in pound

sterling. In contrast though, the Middle East region recorded the highest rate decrease, with double

digit falls in the UAE, Bahrain, Qatar and Oman.

Key trends noted by HRG include:

Many European cities saw average rate growth, such as Stockholm (13%), Zurich (7%) and Geneva (5%),

and five of the top ten most expensive cities worldwide were in Europe: Geneva, Paris, Zurich, Stockholm

and Oslo

London has seen a 1% increase in average rate in the first six months of 2010, after a 4% decline in 2009,

and maintains its position at 23rd in the rankings. The increase was driven by a significant increase in

corporate occupancy levels and buoyant demand from the leisure sector. The snow and bad weather

adversely affected the market in the early part of the year but it rebounded in the second quarter

Moscow yet again retains its place as the city with the highest average room rate for the sixth year,

despite a fall of 12% when measured in local currency. Geneva and Hong Kong were the second and

third most expensive cities respectively

Abu Dhabi rates fell by 26% in sharp contrast to the 38% growth in average rate recorded in the first halfof 2009

Rates in the US were flat or marginally back compared to 2009 figures, with the exception of San

Francisco where average rates fell by 11%

The top end of the market continues to hold up well, with an average rate increase of 1% in 5 star hotels.


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Of the results, Margaret Bowler, Director of Global Hotel Relations at HRG, says: Globally, the hotel industry

has shown signs of recovery in the first half of 2010 when compared to the same period in 2009. A majority of

the cities surveyed, although not yet in positive growth, certainly recorded an improvement in performance. It

is good to see the positive effect of certain sectors travelling more regularly, however it is clear that the rate of

recovery is mixed and varies according to region, country and specific markets. The challenge now facing

hoteliers is to increase rates in line with demand to pre-recession levels, something which many forecasters

believe will not happen until 2012 at the earliest.

Expectation is high for further recovery in rates and the big hotel groups are understandably working to return

their rates to pre-recession levels. HRG has witnessed companies reviewing and consolidating their travel

programmes to secure lower hotel rates through increasing their market share with a preferred hotel supplier.

We continue to help corporates navigate a complicated market and ensure business travellers have the best

hotel deal.

Douglas McWilliams, Chief Executive of cebr (Centre for Economics and Business Research Ltd.), a

leading economic think tank which analysed the HRG survey, commented:

We are in the middle of a global economic recovery which remains in a fragile state. Whilst the possibility of a

double-dip recession is relatively small, the pace of the recovery varies significantly across the world. The

latest HRG Hotel Survey illustrates the effects of a multi-speed economic recovery in the hotel market. Manywestern economies are coming to terms with the budget cuts necessary to reduce sovereign debt levels which

will inevitably soften room rate growth.

Dynamic emerging economies have less need to take fiscal austerity measures in the current climate and we

expect growth to be higher as a result. However, the survey shows that emerging economies have not, as of

yet, fully recovered from the effects of the global economic downturn. In the UK, growth prospects are buoyed

by a weak sterling which continues to support tourism and leisure travel. In addition, the ongoing recovery of

the banking and finance sector will contribute to corporate demand for rooms. There are, however, significant

downside risks to growth in the market emerging from future cuts in public spending.

HRGs interim survey is based on a combination of industry intelligence, actual room nights booked and ratespaid by its UK clients during January to June 2010 compared to the same period in 2009.

The GBP exchange rate is based on the average for the period 1 January to 30 June 2010 versus the average

during the same period in 2009 (data source www.oanda.com)


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Part 2: In depth analysis

Even taking into account the effect of currency fluctuations, average room rates vary significantly by city when

compared to the same period in 2009, revealing a very mixed performance across markets. Six of the top ten

cities managed to achieve average rate growth when measured in local currency.

Moscow has maintained its place at the highest average room rate for the sixth year despite a 12% fall in local

currency.

Meanwhile, Abu Dhabi, which in HRGs January to June 2009 survey was in second place and the only top ten

city at the time to record any growth (5%), has seen a dramatic reversal, experiencing the highest average ratereduction of 25%. Like Dubai, Abu Dubai has faced a substantial fall in occupancy combined with ongoing new

hotel developments, set to continue for some time to come.

Hong Kong achieved the highest growth performance in local currency terms, recovering from an 18% decline

in 2009 to growth of 13% in 2010, assisted by a substantial increase in travel into the city from the Banking and

Finance sector.

Rome, Copenhagen and Dubai (-7%, -10% and -12% in GBP terms) drop out of the top ten, falling to 14th,

16th and 19th positions respectively.


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With the exception of Dublin, where the average rate was static, when broken down on a quarterly basis, all

the key cities saw average rates increase in the second quarter. Taken as an average across all 12 cities

surveyed, average rates fell by 2.5% in the first quarter but grew by almost 5% in the second suggesting signs

of a recovery in the global hotel market.

The country showing the highest increase in rates over both quarters was Hong Kong with growth of 11% and

17%, whilst Zurich, Amsterdam and Stockholm were the only other cities to record consecutive rate increases.

Londons performance in the first quarter was adversely affected by the heavy snow at the start of the year.

However, average rates grew in the second quarter due to a particularly strong April as a result of the effects of

the ash cloud from the Eyjafjallajkull volcano and buoyant leisure demand. [see UK regional focus below].


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While GBP rate increases in Sydney and Johannesburg seem prominent at 24% and 20% this result is due

entirely to fluctuating Australian dollar and Rand exchange rates; when measured in local currency, average

rates were either flat or showing a marginal 1% increase.

Stockholm managed to achieve rate growth due to a recovery in occupancy levels and a lack of any significant

new hotel openings during the period.

Belfast and Beijing both suffer from an oversupply of hotels, the latter having experienced massive investment

in recent years from major players keen to build a presence in this emerging market.

Bangalore, a city reliant on business travel associated with the IT industry and call centres, is a classic

example of a market popping as it has seen rates fall as a result of a drop in demand due to the global

recession coupled with significant new hotel openings which have led to a current oversupply of rooms.

Services apartments have grown in popularity and some of the IT industry has relocated to other areas in

India.


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With the exception of the MEWA region, the global hotel market has shown signs of stabilising when measured

in GBP.

The region showing the highest increase was Africa where average rates grew by 16%, in part reflecting

continued investment from global and multinational organisations engaged in the Oil & Gas, Banking &

Finance and Telecoms industries in the region. Mostly, however, this was down to exchange rate variances,particularly in South Africa. The effect of the country playing host to the 2010 FIFA World Cup did not start to

impact the rates until June.

Following a 17% fall in the first six months of 2009, average rates in Eastern Europe have held relatively firm,

largely due to better performance in Moscow and strong results in Poland where average rates increased by

9% (Warsaw +10%).

The highest regional rate decrease was recorded in the MEWA region (-15%) with double digit rate falls being

recorded in the UAE (primarily Abu Dhabi -26% and Dubai -12%), Bahrain (-14%), Qatar (-22%) and Oman

(-24%). As explained previously, the region has faced a supply and demand issue and a substantial fall in

occupancy combined with ongoing new openings.


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In the US market, where exchange rates were relatively stable in comparison to the previous year, rates were

flat or marginally lower. The primary exception was San Francisco, where average rates fell by 11%. UK

average rates fell by 1.2% or 1.25 per night, compared to the 5% decline seen in the first half of 2009 [see UK

focus below].

Reflecting the need for cost reduction, average rates have decreased in the 3 and 4 star markets as suppliers

strive to maintain their share of the corporate market and clients downgrade between the star ratings as well as

review their programmes and renegotiate rates where possible.

The budget sector achieved a rate increase of 3.75%, with the bulk of this growth being achieved in the second

quarter. As in 2008 the budget, 3 and 4 star markets are all targeting the same clients but the 3 and 4 star

markets have the ability to respond at short notice both in the packaging of rates and availability through

flexible pricing. This has resulted in instances where the budget sector hotels arent always the cheapest

option when breakfast and other value adds are factored in.

The 5 star market achieved a marginal increase of 1%. Whilst there has undoubtedly been a trend for

corporates to turn to the 4 and even 3 star sectors in the current climate, hoteliers in this sector have held out

for rates at the expense of lower occupancy levels, conscious that any significant rate reduction has an

adverse effect on service levels as costs are brought in line, resulting in damage to a hotels reputation for

quality and standards.


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Regional focus: UK

London is the only UK city to have experienced positive growth in rates in the first six months of 2010, with the

UK regional markets, despite improved performances, yet to turn the corner. Overall there was an

improvement on 2009 in average room rates across nearly all major UK cities, but it must be factored that this

is compared to a very poor first half of 2009. Cities such as Bristol suffered from a general drop in demand

combined with an oversupply of hotels and new openings, allowing corporates the ability to aggressively

renegotiate their agreed rates.

Heathrow Airport, with the second most expensive average rate after London, was the only other place to see

an upturn, in part due to the ash cloud leaving travellers stranded at the airport. Like Bristol, many of the UKs

key regional centres, such as Liverpool, Leeds, Manchester and Edinburgh, suffered from the combination of

lower occupancy levels and a level of new hotel openings that hindered rate growth.


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Regional focus: North America

The major North American cities had a mixed first six months of 2010, with the likes of LA and Boston

achieving positive room rate growth but many, in particular San Francisco and Houston, declining. New York

and Washington were again the most expensive rooms, averaging $296.78 and $295.36 respectively.

Canada showed a more consistent performance with all the cities seeing an increase in room rates, except for

the capital Ottawa, where rates were flat. Montreal saw a marked increase of 9%.


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When broken down monthly over the first half of 2010, Americas leading business destination, New York City,

saw buoyant corporate demand lead rates to increase on average by 5% per month. Average rate for the

month of June ($317.08) was up 23% from the rate at the beginning of the year.

The pattern also contrasts to the situation this time last year where average rates could be seen steadily falling

through the first six months of 2009, as America hit the height of the recession.


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Part 3: Summary

Margaret Bowler of HRG says: 2010 has so far proved an encouraging year for the global hotel industry. The

average length of stay has increased by 9% suggesting that corporates have begun to relax their travel policies

in light of the perceived improvement in the current economic climate. However, our data shows that it is not

consistent around the world and it is still too early to predict how the rest of 2010 will pan out.

In addition to lower pricing and in many cases last room availability* (LRA), corporates have been able to

negotiate added value items or unbundled items as the airline industry puts it within their rates such asfood and beverage discounts, free wi-fi access and reduced parking charges. However, it is inevitable as the

industry recovers that yield management will come back into play and suppliers will seek to unbundle further

their pricing to gain maximum revenues. Even in the current market, certain cities are achieving high

occupancy levels on peak nights and HRG continues to advise clients to secure sufficient allocation in high

volume locations.

Margaret Bowler adds: Reflecting the need for cost reduction, clients are downgrading between the star

ratings as well as continually reviewing their programmes and renegotiating rates where possible. In the 3 and

4 star markets average rates have decreased as suppliers strive to maintain their share of the corporate

market. We continue to believe that budget options are not always the cheapest option when the add-on costs

are taken into account.

"With the uncertainty in the market in 2009 the Request for Proposal (RFP) season was extended with many

corporates delaying issuing their annual RFP in the hope that the market would continue to fall and more

favourable rates become available. With the recovery underway it is likely clients will revert to the traditional

RFP season. It will be interesting to see how rate negotiations progress over the rest of 2010 ahead of any

further growth in the industry."

- Ends-

*Last Room Availability -an agreement between the company and hotel(s), whereby all company negotiated

rates associated with a room category are available at the negotiated rate up to and including the last room to

be sold in that room category.


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For further information, please contact:

Sallyanne Heywood/Katy Carmen

Hogg Robinson Group

Tel: +44 (0) 1256 312624/+44 (0) 1256 312622

[email protected] /

[email protected]

Ed Grattan/Tanya Brunet

Euro RSCG Biss Lancaster

Tel: +44 (0) 207 467 9200 / 07817 413 792

Email: [email protected]

Notes to Editors:

Value added tax (VAT) in the UK was returned from 15% to 17.5% from the start of 2010. Many UK suppliers

were forced to absorb the increase as part of rate negotiations. However with the current pick up in the market

HRG research suggests this is unlikely to be the case when VAT rises to 20% on January 4th 2011.

Hogg Robinson Group plc (HRG) is an award-winning international corporate travel services company which

operates from headquarters in Basingstoke, Hampshire, UK. Established in 1845, HRGs interests now relate

to owned or controlled corporate travel services operations in 25 key driver/growth markets throughout Europe,

North America and Asia Pacific supported by contracted partners in Africa, Middle East/West Asia and Latin

America. The HRG worldwide network extends to nearly 120 countries.

HRGs philosophy is to focus on its clients, underpinned by three differentiators its people, its technology and

its breadth of service. The company has experienced management and skilled operators together with a strong

reputation for technology which it develops and owns in-house. In addition HRG is the only major travel

management company to offer a real breadth and depth of services, all of which combine to serve every client

around the globe delivering value, cost savings, efficiency and innovation, without compromise.

HRGs portfolio of clients spans a broad range of industry sectors including but not limited to Automotive,

Banking and Finance, Food Manufacturing, Media and Entertainment, Oil & Gas, Pharmaceutical, Retail and

Telecommunications.

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hrg six month hotel survey 2010 050810

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