canary islands hotels most profitable europe

Canary Islands hotels among Europe’s most profitable

Record revenues for Canary Islands hotels

The hotel sector in the Canary Islands is enjoying a golden era. Demand continues to rise, room prices are climbing ever higher without denting occupancy levels, and accommodation profitability is going through the roof. Revenues earned by businesses in this sector are the highest since the archipelago first became a holiday destination back in the 1960s. But it does not stop there. Profitability is so healthy that Canarian hotels are not only playing in a different league compared with other parts of Spain – the levels achieved mean the islands can now rub shoulders with Europe’s top global destinations. In fact, in the first quarter of this year, only Paris, London, Amsterdam and Rome – cities that are icons of world tourism – saw better hotel profitability than the archipelago.

What is RevPAR and why does it matter?

Revenue Per Available Room, or RevPAR, is the most important metric in hospitality for measuring the financial performance of a property. It calculates the average income per available room over a specific period, taking into account both occupancy rates and nightly tariffs. Put simply, a high RevPAR signals good business performance. In the Canary Islands, hotels hit their highest ever RevPAR figure this February – €138.77 – while March was not far behind, with €136.79 becoming the third highest figure on record.

Outperforming the national average

But when you compare this data with the average achieved by hotels across the country as a whole, the figure becomes even more significant. It is not just that Canarian hotels are achieving nearly double the national average – which stood at €75 in March – but that their profitability is the highest in the entire country. Admittedly, March has traditionally been the best month of the winter season – the most important period for the Canary Islands, when it has almost no competitors since much of the country’s holiday destinations are closed – so the comparison might be somewhat unfair. However, if you take the average RevPAR across the whole of last year, Canarian hotels remain unbeatable and were the most profitable in all of Spain.

A European heavyweight

But the good run of the regional hotel sector does not stop there. Its profitability is also overwhelming at the European level, where in the first quarter of this year it was only surpassed by international destinations such as London and Paris.

Why are Canarian hotels so profitable?

Have Canarian hotels always been this extremely profitable? And why are they so profitable now? Professor of Applied Economics José Luis Rivero Ceballos says the high profitability of tourism businesses in the archipelago is not a new phenomenon. “Historically, it has been this way. That is why there is foreign capital investment, why major hotel chains have established themselves here, and why for years this business has enjoyed very considerable levels of profitability,” he explains.

This trend has become more pronounced over the decades. “Tourism expansion has continued to advance,” he details, noting that despite various crises over the years that have dampened activity, once they have passed, expansion has continued on its path. This situation has now led to “companies having more complex structures because there is symbiosis between different chains, agreements between tour operators and hotel companies have improved, and there is symbiosis throughout the entire value chain” which drives profitability.

Post-pandemic demand surge

So what has propelled these strong figures in the tourism business that allow companies in the archipelago to compete with world-class European destinations? After the shutdown of activity in 2020 and much of 2021 due to the coronavirus crisis, uncertainty was at its peak about how the market would behave once travel restrictions were lifted. And the outcome was not just good – it was excellent. Demand grew like wildfire, tourist arrivals broke historical records almost every month, and the number of overnight stays – which are actually the most relevant figure since hotels charge by the night rather than by the number of guests – also advanced considerably.

“The growth in tourism demand has been so powerful that it has allowed room prices to rise,” explains Rivero Ceballos. And the fact is, Canarian hotels are now more expensive than ever, without this having hurt guest demand. And although it is true that businesses have had to absorb significant cost increases, prices have risen well above inflation levels. This, again, feeds into increased profitability.

Is high profitability good for the Canary Islands?

Is it good for the archipelago’s economy that companies in its main economic activity are doing so well? The professor of applied economics stresses that “the opposite would be disastrous.” He points out that “if these companies were losing money, we would have an enormous amount of unemployment and very serious social problems.” However, he qualifies that regarding the distribution of this wealth and the improvement in the quality of life for Canarians, there are many aspects to consider.

Not only do regions whose economy is based on the service sector traditionally have lower wages than industrial areas, but it must also be borne in mind that “tourism is not just hotels – that is only one part,” he says. Therefore, the employment generated by the sector comes from many other businesses – shops, restaurants, transport companies – most of which are much smaller and operate on much tighter margins.

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