Route to recovery
The political unrest in the Middle East and North Africa, coupled with macro-economic uncertainties in Europe, resulted in lower-than-expected RevPAR growth. However, despite this turbulent environment, the positive momentum was maintained and our like-for-like RevPAR increased by 4%.
The year started with high expectations for the European hotel industry. RevPAR (Revenue Per Available Room) grew in all significant markets and the numbers reflected a good mix between occupancy and rate. However, in the third quarter the pace of growth in the mature Western European and Nordic markets slowed down due to the economic instability in the Euro zone, and the deceleration continued during the last three months of the year.
Eastern Europe, on the other hand, witnessed a great recovery throughout the whole year after being hit hard by the recession in 2009, with Russia and the Baltics as the key performers in the region.
The Middle East and Africa experienced a large drop in RevPAR, due to the political turmoil in the region and the oversupply of hotel rooms in South Africa after the Soccer World Cup in 2010. Adjusted for Bahrain, Egypt and Tunisia, we would have seen RevPAR growth of 6% for the Group as a whole. However, the numbers improved in the third quarter and even more so during the last three months of the year. Some countries in the region, such as UAE and Saudi Arabia, benefited from the turmoil, with strong performance in occupancy levels. Long term, we believe that the Arab Spring will open the door to exciting new business opportunities.
Revenue growth supported by new hotels
Our revenue increased by 10% in 2011, an upswing that came almost entirely from opening a significant number of leased hotels since the beginning of 2010. The new leases, mainly located in the Nordics, performed very well and contributed positively to our EBITDA, although at a lower margin, as they were in their ramp-up phase. On average, we expect our new leases to reach a normal profitability level after two to three years. The loss of fee revenue from the troubled countries in the Middle East and North Africa, some one-off operating costs relating to our increased Park Inn by Radisson marketing activities, and also organisational restructuring carried out during the year resulted in a modest increase of the EBITDA margin compared with the previous year.
Dynamic growth against the odds
Our ambitious expansion continued during 2011, despite the instability that surrounded the industry throughout the year. We added 9,600 new rooms to our pipeline – exceeding our total for 2010. All of these new rooms were under management or franchise contracts, supporting our asset-light strategy to grow through these more profitable and low risk contract types. We brought nearly 6,000 new rooms on line in key locations, such as Moscow, Dubai and Stockholm.
Our pipeline of 22,000 rooms is one of the strongest in the industry and represents ca 30% of the current number of rooms in operation, compared with an industry average of ca 20%. Our growth has always been organic, which is the cheapest way to grow as there is limited capital involved, and it has been a mix between conversions and new-builds. At this point, the entire pipeline comprises either management or franchise contracts.
In line with our strategy to expand in Emerging Markets, 75% of our upcoming new rooms are in Eastern Europe, the Middle East and Africa, and we intend to maintain our strong focus on further expansion in these exciting and less competitive markets. However, projects in these markets – particularly in Russia and Africa – can sometimes experience delays and cancellations.
Profitability: our most important battle
Looking ahead, it is essential that we sharpen our focus on improving profitability, both in absolute terms and relative to the industry. One of our main challenges has been to improve the performance of our leased hotels in Western Europe – or rather, the Rest of Western Europe, as the hotels in the Nordics enjoy a very strong position with strong brand awareness and consequently, substantial RevPAR premiums. In Rest of Western Europe, on the other hand, we have not reached critical mass with regards to brand awareness and our hotels do not get the fair share of the market. As a consequence, the EBITDA margin in Rest of Western Europe has not developed in a satisfying way.
In December 2011 we therefore announced “Route 2015” – a raft of initiatives to improve the EBITDA margin by 6 to 8 percentage points by 2015. This will mainly be achieved by placing stronger emphasis on revenue generation, which in turn will primarily come from creating greater synergy with our partner and brand owner Carlson. Together, we have introduced our enhanced customer loyalty programme, Club Carlson (replacing goldpoints plus). The program is already a proven success with new signings up by 35% year-on-year, now serving 8 million members worldwide. We have reinforced all sales teams in EMEA, Asia and the Americas, and the new organisation will function across all markets, driving the top line in the right direction. The synergy here is obvious: we want to attract more guests from the US and Asia – while Carlson wants more guests from this side of the Atlantic. We’re also working in tandem with Carlson to improve performance in terms of travel intermediaries, brand websites, yield management and purchasing. To facilitate our increased cooperation, we announced in January that Carlson and Rezidor have jointly decided to go to market and do business together as the “Carlson Rezidor Hotel Group”. The goal of the new strategic partnership is to create a greater value for all our shareholders, generate more attractive financial returns for hotel owners and to be perceived by business partners around the world as one global hotel company.
Besides various revenue initiatives, the targeted approach to improve the EBITDA margin includes opening the 22,000 rooms in our pipeline, as well as making cost savings on purchases and energy. We have also created a separate Asset Management department in order to further optimise our existing portfolio of leased hotels in Western Europe, increase profitability and reduce the leverage of the company.
To ensure success on all of these fronts, we have been re-engineering and strengthening our organisation: we’ve welcomed three senior executives into the company, whose vast industry experience and drive will prove invaluable as we forge ahead towards the future.
One important area where we have been investing is in marketing our colourful Park Inn by Radisson brand and I’m pleased to see that our efforts have been rewarded with an improved performance in 2011. We also stepped up maintenance investments in our leased portfolio throughout 2011, making up for holding back during the downturn and helping to ensure we maintain our powerful “new breed” image.