Plunging oil price affecting Aberdeen’s hotel market
Aberdeen, June 2015
Global oil prices have nearly halved since June 2014 as a result of surplus production. Fearing a repeat of history and desiring to retain market share, OPEC decided to maintain oil production rates in November 2014 and has renewed this policy again in June 2015.
When comparing hospitality industry trends over the past 12 months, Aberdeen has clearly been affected by the fall in oil price; due to its role in oil production amongst other major financial hubs within the UK.
Oil Price Correlation with Aberdeen's ADR & RevPAR, in USD
The graph above displays a correlation between the dropping oil price and Aberdeen’s overall hotel performance. Between June 2014 and April 2015, occupancy rates declined by -21.7%, ADR by -15.5%, RevPar by -33.8% and the oil price by -42.3%. Despite the fact that hospitality KPIs in Western Europe are not as volatile as the global oil price, the recent drops are considered significant, especially given that the summer season is arriving. The weakness of the Euro also has to be taken into consideration as this will affect inbound leisure travel from EU countries. On a positive note, Aberdeen has a fair share of domestic tourists who are not affected by the weakening Euro; however, the purchasing power when relating the British Pound to the Euro can lead to domestic travellers going outside the UK.
According to Oxford Economics, the oil price will increase gradually in the medium term, staying below $100 per barrel. Growth in Emerging Markets is key for the price to pick up as it will result in higher demand, thus decreasing the current surplus of crude oil. As a result of the forecasted rising oil price in combination with a healthier Euro, Aberdeen can eventually pick up and strengthen hospitality performance.