Thursday, August 31, 2017

The Price Behind The Occupancy

Five years ago, the then vice-president of the Mallorca Hoteliers Federation, Inma Benito, spoke about the economy being "broken" because of the August hotel occupancy rate. It was around 90%. Benito said that it should be much higher, even implying that it should be 100%. She would have known, as anyone in the industry knows, that there is no such thing as 100%. Some hotels maybe, but across the board it never happens.

The hotel occupancy rate is an indicator that needs to be considered with care. It's important but behind the rate there are factors that have to be taken into account. It is also important to distinguish between forecasts and actual. Talk of a five per cent decline in occupancy in September is forecast talk. The real figure won't be known until late on next month. Moreover, the forecast itself didn't chime with the figures from the Balearic Statistics Institute. For September last year it showed an occupancy rate of 85.94, almost identical therefore to the 85% being forecast for this September. How can there therefore be a five per cent drop? It probably depends on what statistical base is adopted. If the hoteliers have a different one, then there needs to be an explanation as to the variance.

That 86%, was about as good as it has ever been for a Mallorca September. The year before it was 83.4%. If the hoteliers are right, and the rate is around 85% this year, then it would still represent a very positive figure. But as I say, the hoteliers seem to be operating from an alternative base.

The point about occupancy is, quite obviously, that it is a ratio linked to the number of rooms and beds. A further point - also obvious - is that occupancy applies to the full range of hotels and so therefore to their star categories and their prices. Both of these points, however obvious they are, can easily be overlooked.

As part of the modernisation process of Mallorca's hotels, some have added rooms. The 2012 tourism law facilitated this. More rooms mean more beds mean higher potential occupancy. The process is only now drawing to a conclusion.

So one has to be aware that in certain instances one isn't comparing like with like because of an increased number of rooms. A further ingredient in the modernisation process has been the upgrading of star categories. There are now that many more four-star superior and five-star hotels. There have never been as many. And it is with these hotels where occupancy can begin to look potentially troublesome. The much-vaunted quality has risen and so has the price.

In July the occupancy of these top-notch hotels was no better than it had been the previous year. Forecasts (always forecasts) had anticipated that they would be better, but they weren't. August is likely to have shown no difference. In September, well in September might it be that a fall in occupancy, if it truly emerges, is in this high-end sector? The problem is that one doesn't get an accurate picture because the occupancy rate is a catch-all.

The experience in Ibiza is particularly startling. Several hotels at the high end were only scraping 60% occupancy in July. To put this figure into context, the July occupancy for Ibiza and Formentera last year was 88%, below Mallorca's 91.35. It now emerges that there are current offers of up to 30% off for some hotels in Ibiza, with the high end among those making the offers. The president of the Council of Ibiza, Vicent Torres Benet, who has specific responsibility for tourism, says the season has not been as had been anticipated, and that's because of prices.

Ibiza isn't the same as Mallorca in that its hotel occupancy is typically lower, but it does act as a barometer. While Mallorca's hoteliers can point to increased revenues, courtesy of higher prices, a further key indicator for them - the RevPar revenue per available room - may just start to go into reverse. The price is up but the take-up is lower.

Yet for all this, we had a situation in July where occupancy in Mallorca (based on overnight stays) outstripped everywhere else in Spain with the possible exception of Benidorm. In Andalusia, Costa del Sol and all, there was an average occupancy of 67% compared with the 90% plus in Mallorca. And this is for a region which spends healthy sums of money on promotion, the opposite to what happens in Mallorca.

September's occupancy is something of a red herring, but lurking behind it is the issue of price and not just the price for the high end. It's next year we should be looking at. It is suggested that the strength of the Mallorca "brand" can withstand most that it is thrown at it. This may be so, but what about the prices?


Son Fe Mick said...

And the exchange rate which just keeps on going down

andrew said...

Agreed, Mick. The price pressure on the UK holidaymaker is like never before. There have been poor exchange rates in the past, but they weren't combined with such elevated prices plus a possible doubling in the rate of the tourist tax.