• Domestic markets hold Spanish groups back

Meliá Hotels International and NH Hoteles reported difficult trading in their domestic market, due to a weak corporate market.
There were hopes that the summer leisure consumers would allow rates to be increased, as both companies continued to look to their international businesses to compensate.
Meliá Hotels International saw net profits drop 41% drop for the first six months to Eu8.0m, although revenue increased 7% to Eu620.4m, with the group attributing the fall in profits to "exchange rates and the differences in the generation of capital gains".
The company added that franchise fees relating to the Tryp by Wyndham brand had hit profits, as they increased by 20.9%, due to the performance of the Brazilian hotels, where management fees increased by 34%.
The group was confident looking forward, pointing to a 7.2% increase in second quarter revpar as the "sluggish" performance of the Spanish cities was offset by the rest of the regions, particularly European cities, Spanish resorts and Latin America.
Gabriel Escarrer, vice chairman and CEO, said: "The company expects a positive summer season in destinations such as the Balearics, mainland Spain and the Canary Islands. The booking position from the main European feeder markets, especially the UK, central Europe, Italy and Russia, and company-owned channels indicate a solid evolution of revpar in the third quarter in both pricing and volume."
Escarrer cautioned that domestic demand remained slow and said that the group was witnessing "a mild slowdown in global expansion due to greater than expected weakness in the US activity and renewed financial volatility in the Eurozone". The recovery in business travel, however, meant that the group anticipated further strengthening of its premium brands, in markets such as Latin America, the Caribbean and the European cities.
The group is to pursue overseas expansion at the higher end of the market, having added 11 hotels to its pipeline so far this year, leading to a current pipeline of 32 new hotels with 8,203 rooms, of which 81% were in the upscale/premium category, 87% under low capital-intensive formulas, such as leases, management and franchises and 84% outside Spain.
At NH Hoteles, the domestic market was also causing concern. The company saw revpar growth of 7.7% in the second quarter, backing its expectations for the full year of 6% to 8% growth.
In a call to analysts, Ignacio Aranguren, chief strategy officer, said: "We had expected the price component expected to be 50% of revpar, but it is currently 40% of total revpar increase, as a result of difficult operations in the Spanish market. We think we are getting close to the point where the fall in ADR must be touching the bottom. Occupancy is close to 65% so in the coming months we hope that we won't have to cut rates to maintain occupancy.
"In the rest of the regions where we operate we continue to see recovery at a good place, especially in Italy, were revpar growth for the six months was 7.7%."
The group has, since the start of the year, put its resorts in Italy and Spain into a separate unit, Resorts Europe, to allow for easier monitoring. The division saw ADR drop by 17.1% for the half year, although revpar rose as a result of occupancy growth.
Growth elsewhere in the company was driven by corporate clients in key cities in Europe and the Americas  which helped to push revenue up by 11% to Eu709.22m and Ebitda up 35.2% to Eu92.69m
The company's latest move to pursue growth was a deal in May which saw HNA Group, the China-based airline and hotel group, acquire a 20% stake for Eu431.6m. The two groups will form a joint venture to manage hotels in China and will have exclusive rights to use NH's brands. Commenting on the deal Aranguren said that the group anticipated seeing its first bookings from Chinese guests in the final quarter of this year.

HA Perspective: Look away now. It's already ugly in Iberia and going to get uglier. There has been little transaction activity in Spain yet despite the huge amounts of distress. The main reason seems to be a failure to reset real estate prices at a realistic level.
The huge supply overhang in the residential market will eventually cause a shift downwards in price and hotel property will not escape such moves. It is not surprising then that there are few buyers willing to risk catching falling knives.
What deals have been done have been at the corporate level, focusing on branding and alliances with both NH and Sol teaming up with Chinese groups, and Marriott tieing up with AC. Expect more of the same for the time being.

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