Spas boost revenues of Dubai luxury hotels

A not-so-mature element of Dubai hotels' revenues as of now, the spa industry in this part of the world is gradually coming to the aid of luxury hotels that have been taking on the stress of losing revenue to the global economic slowdown.

The Ernst & Young's (E&Y) Spa Benchmark report for the first quarter of 2010 reveals that aggregate spa revenues (revenues generated by treatments, retail sales, fitness and related memberships, and other charges) for Dubai hotel spas in the first quarter of 2010 recorded a 45.5 per cent increase compared to the spa revenues during the same period in 2009.

Spa treatment revenues were approximately 70 per cent higher and number of treatments booked approximately 62 per cent higher in the first quarter this year over the same period last year.

As per the detailed year-end analysis for 2009, hotel spas showed a strong performance at the end of the year, and this positive trend for Dubai hotel spa performance appears to continue through the first quarter of this year.

While emphasising that the positive trend noted in spa performance in last quarter of 2009 continued through the first quarter of 2010, Paul Arnold, Principal and Head of Transaction Real Estate Advisory Services Group – Middle East & Africa, Ernst & Young, told Emirates Business: "Despite challenges in 2009, hotel spa performance proved better than expectations. The year 2009 began on a solemn note, but hotel spas showed a strong performance at the end of the year."

He said the overall sense is that spa business performed better than expected in 2009, especially in the last quarter, with aggregate spa revenues in Q4 2009 being 48 per cent higher than revenues in Q1 2009.

According to the Ernst & Young's Spa Benchmark Survey that tracks aggregate revenues generated at hotel spas, treatment revenue contributes the largest share of the spa revenues — approximately 70 per cent.

"In 2010, the focus for spas, like every other business, will be on maximising revenue generation potential from each revenue stream," said Nikita Sarkar, Senior Consultant – Spa Industry Specialist, Ernst & Young.

She said typically spas have been accounting for a smaller chunk of revenues generated by hotels, ranging anywhere from three to 15 per cent.

Retail revenue

The E&Y benchmark study for the first three months of 2010 reveals that the year-to-date retail revenue component of the total spa revenue stood at 10.6 per cent for overall Dubai hotel spas.

On a monthly basis for Q1 2009, however, retail revenue per cent contribution to total spa revenue was consistently lower at city hotel spas than beach hotel spas, the E&Y study points out.

It further stated that the retail spend per booking increased approximately 13 per cent from Dh54 in January to Dh61 in March for overall Dubai hotel spas.

Clearly, retail sales remain an under-exploited component of spa operations. With improvements in spa performance in past two quarters, it would benefit spa operators to apply increased attention to sales efforts with the goal of maximising profits from this high-margin revenue stream this year, according to the report.

Comparatively, the year-to-date December 2009 retail revenue represented approximately nine per cent of total spa revenue for overall Dubai hotel spas indicating that retail sales remain an under-exploited component of spa operations, according to Sarkar.

"As such, it would benefit spa operators to apply increased attention to sales efforts with the goal of maximising profits from this high-margin revenue stream," she said. "Additionally it is found that approximately two per cent of year-to-date December 2009 aggregate spa revenue is contributed by other charges, which include day usage fees, rental fees, etc."

"There exists an opportunity at hotel spas to maximise incremental revenues from other charges via spa membership and loyalty programmes, especially as they may stimulate revenue generation from typically non-revenue producing areas of the spa (i.e. steam, sauna, lounges, etc.) without necessitating customer spend on high price point spa treatments," Sarkar further pointed out.

The game of RevPath

As more and more attention is expected to be on operational diagnostics for spa business improvement in 2010, the revenue per available treatment room hours (RevPath), a standardised metric designed by E&Y, is a step in the direction of taking the spa business in a more organised direction. Just like the hotels use RevPar – revenue per available room – as a benchmark to measure performance, RevPath is used for accurate analysis of a spa's operational performance.

According to the E&Y survey, April and November proved to be the best months in 2009 for spa revenues, with RevPath reaching Dh101 and Dh99 respectively.

Compared to that, year-to-date RevPath in Q1 2010 for overall spas came in at Dh77, reflecting a 5.5 per cent increase over the Dh73 RevPath in 2009 over the same period.

Given the increased emphasis on operational and business process improvement at spas this year, trends in RevPath should be carefully studied as this metric directly opens doors for revenue management techniques, states the E&Y analysis.

While the general belief had been that spas (especially luxury hotel spas) would be greatly negatively impacted due to the "pampering" and "indulgent" nature of the business, E&Y's Spa Benchmark Survey data suggests another story, says Arnold.

Yet another interesting finding that emerges from the E&Y spa survey is that even though spa performance is somewhat correlated with hotel performance, it appears to be more resilient, said Arnold.

ADR vs ATR

"Data indicates that spa ATR [average treatment revenue per treatment sold] remained fairly steady in the face of dramatic declines in hotel ADR [average daily rates] in 2009," he said, adding that the fact may be attributed to large number of non-hotel guests visiting spas as well as the propensity of guests who have saved money on hotel room rates to spend on recreation at the hotel.

Citing an example, Arnold said a wide variation was noticed in hotel ADR in 2009, ranging from Dh1,121 to Dh559 – a spread of Dh562, displaying a 24 per cent standard deviation to mean ratio.

"In contrast, spa ATR proved to be more resilient and remained in the Dh314 to Dh384 range throughout the year, indicating a much tighter spread of Dh70, displaying a smaller six per cent standard deviation to mean ratio," he said.

Discounting practices

It is true that the economic downturn accounted for the majority of the stress for Dubai hotels last year, just as it did for hotels worldwide. However, some of the key challenges faced by hotel spas in 2009 included discounting practices that lead to price-based competition, staff downsizing that lead to low levels of personnel besides maintaining service standards with limited resources due to budgetary constraints, the E&Y report points out.

"Yet, from a consumer perspective, contrary to popular belief, it appears the popularity of spas has not diminished. The improvements witnessed in hotel spa performance in last quarter of 2009 are in spite of, and many believe due to, the troubled economic environment, as well-being, stress-reduction and "staycations" became top priority for many," said Sarkar.

"The positive trend in hotel spa performance is mainly attributed to the easing of the effects of the financial crisis due to the end of the freefall in the real estate market, improving consumer sentiments, and the better weather during the winter months," she said. Moving forward in 2010, however, spa operators unanimously agree that the focus for hotel spas will be on "maintaining and uplifting staff morale, creating and delivering on a differentiated brand promise, and undertaking operational diagnostics and business process improvements with the goal of revenue optimisation", said Sarkar.

STRESS POINTS FOR Q1 2010

- Year-to-date utilisation of treatment room hours for overall Dubai hotel spas rested at approximately 25 per cent, reflecting a marginal improvement of approximately one percentage point (pp) from January to March, the report indicates.

- Year-to-date utilisation of therapists' hours for overall Dubai hotel spas was 54 per cent, reflecting a marginal decline of 0.5pp from January to March. However, utilisation of therapists' hours increased by 6.5pp in Q1 2010 compared to Q1 2009, indicative of better scheduling and higher staffing efficiencies achieved in the current year.

- Year-to-date percentage split of spa treatments booked by hotel guests versus non-hotel guests stood at 61 per cent and 39 per cent respectively. On a monthly basis, the percentage of hotel guests visiting the spa ranged between 60 per cent and 62 per cent, higher than the 48 per cent to 58 per cent range witnessed during the whole of 2009.