Melia Hotels International results improved by 74% up to September, driven by the positive summer season in Spain, asset repositioning, and the growing strength and diversification of its business model
“Business results through September were boosted by the impact of positive tourism trends in Spain which our Company has been able to maximize thanks to our experience and leadership in the resort hotels segment and the successful strategy to renovate, rebrand and repositioning some of our most emblematic assets. In addition, intense debt reduction and improved financial results have put us in an excellent position to take on the growth we expect in the short, medium and long term.”
Meliá Hotels International announced results for the first nine months of the year today, boosted by the positive impact of demand in a positive summer season in Spain, and also reaping the rewards of the strategy to renovate, rebrand and reposition some of its most emblematic resort hotels in recent years. Taken together, these hotels saw RevPAR increases of 40%. Meliá’s experience and leadership in the leisure segment also contributed to its success in city hotels in Spain, which saw remarkable growth in revenue per available room of 11% in the third quarter.
The Company recorded a net profit of EUR92.2 million, a 74% increase over the first nine months of 2015, an increase that rises to 130% if the effects of extraordinary items are eliminated, such as the EUR48 million of capital gains and impairment of Puerto Rico, which both impacted the results for the same period in 2015.
Meliá once again highlights the strong performance of the hotel business as the most important factor behind results which do not include any capital gains from asset sales in the third quarter. With regard to the close of 2016 and 2017, the Company expects to complete the sale of some non-strategic assets in the portfolio to strengthen the model of using joint ventures as a driver for the transformation of assets which require large investments, also positively contributing to the quality of the properties operated under the different brands, and the intensification of the Company business model fundamentally based on hotel management. In this regards, the Company informs that on 4th November 2016 Meliá Hotels International sold the 246-room Sol Parque San Antonio resort, located in Puerto de la Cruz (Canary Islands, Spain). The transaction amounted to 8 million euros in cash and generated capital gains of approximately 4 million euros which will be included in fourth quarter 2016 results.
Financial results also had a positive influence, with a significant reduction in debt (EUR240 million less than in December 2015) combining with a consistent reduction in the average interest rate, which fell to 3.6%, generating savings in finance costs of EUR20.5 million. The reduction of net debt to EUR528.8 million was made possible by the amortization of the convertible bond and increased cash flow from the business, all of which contributed to improved financial ratios, such as the ratio of Net Debt / EBITDA (excluding capital gains) that the Company expects to maintain between 2.5 and 3 times.
Regarding international expansion, Meliá Hotels International continued to add hotels in emerging markets in which it already operates, such as Indonesia, with the addition of the Meliá Lombok Tangkong, the Meliá Bintan, and the Meliá Pekanbaru; Qatar, with the Innside Doha; Vietnam, with the Meliá Ho Tram Meliá; Cabo Verde, with 4 hotels, the Meliá Salamansa and Meliá Lusophony complex; and Tanzania, with the Meliá Serengeti. The Company also added hotels that open up new markets, such as Kazakhstan, with the Meliá Almaty, Iran with the Gran Meliá Ghoo, and the Maldives, with the Gran Meliá Maldives.
The results in the region were positive as expected, overcoming the slowdown seen in the first half of the year, mainly thanks to the contribution of new openings such as the ME Miami, and especially the Innside New York Nomad. The latter continues to exceed expectations in its first months of operation, with occupancy rates above 85% and a growing price positioning, forming an excellent base for the growth that the Company expects to boost in the US market in 2016 and 2017.
Equally positive was the performance in Mexico despite the decline in business groups and the situation in some Latin American feeder markets. In particular, the Company highlights the evolution of some key assets in the region: firstly, the ME Cabo Hotel saw a dramatic improvement in results after a major renovation; and secondly, the Paradisus Cancun and Paradisus La Perla and La Esmeralda in Playa del Carmen continue to consistently improve results. In the fourth quarter the Company will open the Meliá Cartagena de Indias in Colombia.
Looking forward to the fourth quarter, Meliá hopes to maintain occupancy at acceptable levels and to continue to improve profitability, while also expecting to see a short-term improvement in the pace of reservations made for hotels in the region.
The region saw positive results up to September, highlighting the results by country:
Germany, is taking advantage of a year with a large number of trade fairs and conventions to grow and improve market positioning, also benefiting from the excellent performance of the Innside Leipzig and Innside Aachen hotels since their opening, and the strength of some other destinations where the Company operates such as Wolfsburg, Bremen, Dusseldorf Hafen and Oberhausen. Highlights include a 6.2% increase in RevPAR in the third quarter, even though it was the period with the lowest number of trade fairs and business groups.
For the fourth quarter forecasts are even more optimistic in Germany and its area of influence based on the successful opening in October of a third hotel in Frankfurt, the Innside Frankfurt Ostend, and the trends towards maximizing revenues in first and second-tier destinations such as Vienna, Wolfsburg, Berlin, Luxembourg and Dusseldorf.
The Company reiterates its commitment to Germany, its second largest destination market in Europe, where it currently operates 26 hotels, 13 of them under the Innside brand.
United Kingdom: most significant during the period was the considerable decline in the Leisure segment, resulting in a gap which could not be offset despite the strong performance of the groups and Corporate Business segments. The struggle with the currency effect, the incorporation of the Innside Manchester (with lower rates) and the spill-over effects of the terrorist attacks in Paris and Brussels stand out among the reasons for this weak performance. Considering the outlook for 4Q, the holding of the Rugby Worldcap between mid-September to October 31 last year, will be a challenge to maintain the level of prices in 4Q in the UK, more even taking into consideration the weak current situation.
Italy, except in Milan which still suffers from the comparison effect with 2015 when the city hosted EXPO 2015 (especially noticeable in the third quarter), results were very positive in hotels, including the Gran Meliá Rome, which increased its average rate in the third quarter by 10%, and also in Genoa, Capri and the Meliá Il Campione. In the final quarter, the Company expects to keep up positive results in all destinations except Milan, which will continue to be affected by the comparison with the previous year.
Spain, recorded an excellent performance in the first nine months for the hotels included in the EMEA region, with growth especially remarkable in resort hotels such as the Gran Meliá Palacio de Isora (which generated EUR1.2 million more than in the third quarter of 2015), the Gran Meliá Don Pepe, Meliá Sancti Petri, and the newly renovated and rebranded Gran Meliá de Mar.
The company highlights the contribution of the ME Ibiza hotel which was the first hotel in Ibiza to join the exclusive club of Leading Hotels of the World and has now become the first Company hotel to form part of the prestigious Virtuoso travel network. The hotel has further strengthened its position as one of the most exclusive hotels in the Balearic Islands, maintaining an average rate of more than EUR500 and extraordinary occupancy levels.
City hotels in the region also saw growth, highlighting the recent opening of the Gran Meliá Palacio de los Duques in Madrid, a hotel that is already a member of the Leading Hotels of the World and which aims to become the leader of the luxury hotel market in the Spanish capital. After a few months of operation, the hotel ended the third quarter with an excellent average rate of EUR264, higher than the average of its competitors amongst the most exclusive hotels in Madrid.
In Spain, a double digit increase in RevPAR is estimated compared to the final quarter of 2015 with an outstanding contribution from the Gran Meliá Palacio de Isora and from the ME Ibiza, which will end a successful year with a major automotive event which will delay its closure by a few extra weeks.
France remains stagnant twelve months after the attacks in Paris, seeing a drop in RevPAR of 19% in the third quarter compared to 2015, largely due to continued low occupancy in hotels in Paris, even in the Meliá La Defense which has a more balanced segmentation between leisure and business travellers. For the fourth quarter the Company expects to see some recovery (around 4% in RevPAR), and if the social and political conditions of the country remain stable, forecasts that 2017 will be a year for recovery.
Developments in all destinations point towards an improvement over last year, with the Company specially noting a good performance in July and August — slightly above 2015 — and especially good occupancy in September. The predominant source markets remained the UK and Germany, accompanied by the Spanish market.
By region, Tenerife led the revenue improvement with growth of 65%, followed by the Balearic Islands and Las Palmas with just over 25% growth, and the resorts in mainland Spain which improved by 15% overall. Outside Spain there was a positive contribution from Cabo Verde, which more than doubled results with an increase of $22 million euros. In the Balearic Islands a highlight was the successful positioning of the renovated Meliá Antillas Calviá Beach, which has also contributed significantly to improving the image and sustainability of Magaluf, as well as a better customer segmentation, attracting new international lifestyle brands such as Ibiza Rocks to the destination.
In partnership with Ibiza Rocks, note should also be made of the magnificent reception for the new Sol House Mixed by Ibiza Rocks in both Mallorca and Ibiza, and the evolution of the Sol Beach House, designed exclusively for adults, in Mallorca, Menorca and Ibiza. It should be highlighted that last week the Company get two awards at the European Hospitality Awards, one of them thanks to the Sol Katmandu hotel that has been recognized as “Best Innovation in Service”.
The outlook for the fourth quarter in the region points towards an extension of the season thanks to a positive October in resorts in general and a positive winter season for hotels in the Canary Islands, in line with the evolution of the German and UK markets.
With a view to 2017, the Company expects to improve over the current year, particularly with regard to prices, once again confirming the capacity of the resort renovation and repositioning in the region to increase profitability, which is also expected to be boosted by the Company’s revenue management strategy. Lastly, the Company continues to monitor the still unpredictable potential impact of Brexit on the region.
Spain – city hotels
The Company’s city hotels continued to see positive developments over the year, particularly benefiting from the performance in the east of the country (Catalonia, Valencia and the Balearic Islands). Meliá’s leadership of the resort hotels segment allows the Company to optimize results in city hotels located in destinations with a strong leisure component (the so-called “bleisure” destinations), offering a more complete hotel stay experience.
Official data show growth of 17% in sales by travel agents to Meliá hotels in the Spanish market, and growth of 3% in the MICE segment (meetings, incentives, conventions and events) over 2015. Northern Spain saw a double-digit increase in room revenue in the third quarter of 2016, attributable both to events in the destinations, the good weather, and increased demand for the most popular destinations. Highlights include the contribution of hotels such as the Meliá Bilbao, Meliá Zaragoza and the Meliá Maria Pita (La Coruna).
In the centre of Spain, Madrid saw double-digit growth in revenue per room over the previous year, highlighting hotels such as the Tryp Gran Vía, Meliá Galgos, and the hotels near the airport. Hotels in the east of Spain saw growth of almost $14 million in revenue, 40% of which was generated in the third quarter, thanks to the impact of the holiday season in cities such as Alicante, Barcelona, Palma de Mallorca or Tarragona thanks to their hybrid nature (as business and leisure destinations), and the strength of sales in the region through melia.com.
In the south of Spain, after overcoming the impact of an unfavourable ski season and a lowest number of business events in Seville compared to the previous year, highlights include the performance of the hotels in Malaga, a destination that is very much in fashion in 2016, especially the Meliá Marbella Banús and Tryp Estepona Valle Romano. Overall, the strength of the business travel segment drove higher occupancy, while the individual travel segment allowed an increase in rates, thus achieving a very positive balance.
In the fourth quarter a slight slowdown is expected due to the comparison with the same period of 2015 in which major conferences were held in Madrid, and the beginning of the off season in November, although interrupted this year by the Spanish Constitution bank holiday before Christmas. A complicated ski season is also expected. Barcelona and Palma de Mallorca are excluded from this trend due to several conferences and important events.
During the first nine months of 2016 the Company continued to improve results in Cuba, where revenues reached EUR17.9 million, 31% higher than in the same period in 2015. RevPAR increased by 9.9% thanks to excellent growth in rates which rose by 18.1% in euro terms, particularly in the four city hotels operated in Santiago de Cuba and especially Havana. A milestone in the third quarter was the launch of direct regular flights between the United States and Cuba, connecting Fort Lauderdale and Miami with Cuban airports in Santa Clara, Varadero, Cienfuegos, Camaguey and Holguin.
With regards to the fourth quarter, forecasts point towards the maintenance of the positive trend, with the new flights adding 40,000 extra flight seats per week, more than half of them to Havana, and which in the coming months will be extended to Santiago de Cuba, Cayo Coco, Cayo Largo and Manzanillo.
The complex economic and political situation in 2016 has led to a significant weakening of domestic demand and a consequent price war, with Meliá hotels seeing a 15% drop in average rates over the previous year. In Brazil, the Company hotel portfolio is primarily city based and therefore highly dependent on the corporate travel segment, which is one of the segments most affected by the crisis and political instability, along with travellers employed by the public administration and state enterprises. Added to this there are also high levels of inflation and higher energy costs which have an impact on hotel profitability.
The Company expects the difficulties to continue in the fourth quarter, although expectations and financial markets point towards improving economic indicators. In addition, the evolution of some major Brazilian companies suggests a glimmer of recovery, accompanied in the case of Meliá by the renovation of 3 hotels in 2016 and the rebranding of one of them. 2017 will also be strongly influenced by the significant contribution expected from the new Gran Meliá Nacional Hotel in Rio de Janeiro,
Company results in Asia have been positively impacted by the opening of 5 new hotels in 2016 (the Imperial Boat House in Thailand, Meliá Danang in Vietnam, Sol Beach House Kuta and Meliá Makassar in Indonesia, and Meliá Yangon in Myanmar) and reforms and re-brandings made in the region. The effort made to renovate hotels in Asia has paid off and should lead to a quantitative and qualitative improvement in results in the region. Looking ahead, Meliá maintains an ambitious expansion strategy in the region, with a pipeline that already includes 21 hotels.
By market segment, one highlight is the increased contribution of the MICE segment after integration with the leading online travel agency in China, CTrip, allowing bookings to be made directly with Meliá systems and thereby increasing the number of bookings and allowing an optimization of sales strategies in the region.