• Domestic market boosts Spanish groups

Spanish hotel groups NH Hoteles and Sol Meliá have seen their second half profits and revpar bolstered by a recovery in the domestic market, which after suffering in the downturn, the World Tourism Organisation expects to see rebound this year.

Both companies reported stability in average rates which was patchy across their various brands, but forecast to continue improving. Both are also looking to reduce future volatility by cutting the concentration of their portfolios in Spain.

Sol Meliá reported a first-half profit of Eu13.5m (£11.2m), up from Eu1.2m in the same period last year, with revenue up 7% to Eu581m and Ebitda growing by 13% to Eu97m. Revpar for the first half increased by 6% to Eu44.80, with a 11.9% rise in the second quarter.

The second quarter also gave the group its first increase in hotel Ebitda, of 15.5%, after nine quarters of decreases. The company has seen its European hotels supported by a return of the corporate market, but said that "uncertainty about recovery in the US and economic policy in Spain" meant that it would remain prudent looking forward.

It expected revpar to be above 2009 levels for the next three months, allowing it to compensate for the hit taken as a result of the volcanic ash cloud in the second quarter.

Sol Meliá is the most resort-based of the groups, but is now seeing these same sites pulling it into rate growth, with the 1.7% increase in first-half rate driven by a 6.2% increase at the Meliá brand, which the group said was largely down to its Spanish resort properties. Occupancy for H1 increased by 4.1%.

Sol Meliá has continued to make efforts to both cut debt – which it has done by Eu181m to Eu873.6m – and extend its global reach to spread the risk away from Spain and the leisure market.

The most significant strategic move made during the period was the sale of the Tryp brand to Wyndham Worldwide for Eu33.5m. For Wyndham, the deal gave them a holding in Europe and Latin America and for Sol Meliá, future exposure to the US. Under the terms of the deal the pair will work together to build the brand.

As part of its wider portfolio expansion the company has added its first hotel in Dubai and sites in Medellin and Frankfurt. By brand, the group is looking towards its mid and upscale brands (Tryp, Innside and Melia) to grow in major European cities, particularly in the UK, France, Germany and Italy, as well as the US.

Gabriel Escarrer, vice chairman and CEO, said: "Sol Meliá's expansion strategy will be more focused outside Spain and via low capital intensive formulas. This is how we aim to grow in European cities – especially in Germany, Italy and France with midscale and upscale brands."

Of its 26-strong pipeline, 75% of the group's hotels are under its upscale brands and 75% under management or franchise agreements, in line with plans by to prioritise the sale of non-strategic properties to strengthen the balance sheet and make new strategic acquisitions, predominantly through partnerships.

NH Hoteles saw rate fall by 4.64% for the first half, but said that decline ended in the second quarter, with occupancy increasing, indicating a move towards stability for the group, as revpar grew by 7.23% for the half-year, but 13% for the second quarter.

The group relied on its business in Germany for the recovery, where it said it had seen a return of the corporate market, in addition to business from Munich's trade fairs.

First half net income rose by 2.7% to cut group loss to Eu39.9m from Eu41.0m in the same period in 2009. Revenue for the first half of the year was up by 8.3% against the same period last year, to Eu639.98m, with Ebitda increasing 87.3% to Eu68.33m.

NH's home market of Spain also showed a positive trend in occupancy, up by 16.86% on the year for the first half, to 59.51%, with the group commenting that it appeared "to be leading to stabilisation in ADR", adding "noteworthy is the increase in sales at weekends for all regions. Madrid, Barcelona and Valencia show over 20% increase in occupancy".

ADR in the country was down by 11.14%, to Eu73.22, leading to a 3.84% increase in revpar, to Eu43.57.

In a conference call, Ignacio Aranguren, chief strategy and investments officer, said: "The third quarter continues the line of recovery seen in the second quarter. The summer is a low season in general for us, but looking at what we have on the books for September and October, the initial numbers look quite positive. We think that the recovery will be maintained for the rest of the year.

"We see possible positive growth in rate in the third quarter, but we cannot promise that it will become positive. The only way to improve the ADR is by revenue management and by changing the profiles of the customers. Once we see the general level of activity at between 60% and 65% occupancy, we can start to think about ADR.

"The general economy in the countries in which we operate hotels is very difficult."

At the group's previous results announcement, it said that full-year Ebitda was expected to be Eu115m, up from Eu75.05m in 2009. Aranguren said: "I think this number that we have reported can be revised and increased, but we don't have sufficient visibility to commit to a new figure."

NH is to continue its Eu300m asset disposal plan, which has so far seen it raise Eu117m after selling three hotels in Mexico and St Ermin's Hotel in London. NH made a capital gain of Eu16.4m at revenue level, pulled down to a net loss of Eu5.2m as the result of Eu21.6m net exchange rate differences after Ebit.

The company said that it expected to complete the plan during the first months of 2011 and has cut its debt to Eu1.07bn at the end of the half, from Eu1.12bn at the end of 2009.

In addition to the four sales, the company cancelled the contracts of other nine hotels in the first half of 2010 – seven management and two leased – as part of its asset rationalisation strategy.

The WTO has forecast a 4% increase in international tourist arrivals for the year in Spain, with the country already showing an improvement of 1.1%.

Of Europe's top three holiday destinations, Spain was hit the hardest during the recession, due to a fall in the number of tourists from its major source markets, the UK, Germany and France. Britons in particular shunned the country as Sterling weakened against the Euro.


HA Perspective: Despite plenty of public relations spin, it is hard to see how the sale of Tryp to Wyndham is anything but a symptom of distress.

At best, Sol is signalling it cannot compete on the global stage and needs the help of a partner. More worryingly, it is also shows that the only way Sol can increase profits is by selling off key assets – without the Eu33.5m received from the Tryp disposal, EBITDA would have gone backwards.

The wider question is: where are the Spanish players heading? For the two biggest, they are too cumbersome to duck and weave a path past the big global players but too small to compete effectively with them.

Sol's family ownership structure means any hostile move stands no chance. Its resort focus in any case makes it unappetizing for most would-be buyers.

NH is a much heralded takeover target but the combination of exposure to Europe's weakest major market and its problematic German leases have put off acquirers.

Maybe a more extreme version of Sol's deal with Wyndham is the answer. By selling all their brands and / or franchising others and further shrinking back their real estate exposure, they could become focused and thus effective hotel operators.

Back in the real world though it is hard to see the respective boards swallowing that amount of pride. 

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