Data for the first quarter of 2004 is however more encouraging. Both increasing confidence in the business sector and improvements in passenger traffic volumes have helped drive occupancies. Although average room rates have remained fairly static during the first quarter of the year, anecdotal evidence from local hoteliers suggests that both markets are still susceptible to short-term tactical price-discounting. Overall revPAR has increased by five percent at Heathrow and 11 percent at Gatwick during the first quarter of 2004.

Major airport hotel markets are not dissimilar to any other urban hotel market. Both rely on corporate demand to fill rooms during weekdays, whilst weekend occupancies are buoyed predominantly by leisure guests and passengers. At Heathrow, major companies operating in the locality include SAP (UK), Sita, GlaxoSmithKline and IBM, whilst at Gatwick a smaller number of major firms reside including Schlumberger Electronics, Virgin Atlantic and British Airways Holidays. Both markets also benefit from strong transportation links. Both are located within close proximity of major motorways � Heathrow to the M4 and Gatwick to the M23.

The characteristics of both airports also have a direct impact on the local hotel market. British Airways, the dominant airline at both Heathrow and Gatwick, have moved a number of short-haul routes from Heathrow to Gatwick, accompanying the existing short-haul and package-tour operators there. According to Air Coordination Limited the top three destinations (by number of seats) from Heathrow are the commercial cities of New York, Paris and Amsterdam, whilst Malaga, Edinburgh and Tenerife are amongst the most popular destinations from Gatwick.

Whilst there are numerous commonalities between airport markets and their city-centre counterparts, there are also some unique factors affecting the dynamics of the airport hotel market. This is perhaps more apparent at Heathrow where the average size of a hotel covered by the HotelBenchmark Survey is 376 rooms, more than 65 percent larger than those in our central London sample. Conversely, Gatwick properties are only around ten percent larger than those in central London. A combination of both the volume of local corporate business and air passenger traffic (particularly in terms of the potential for cancelled/delayed flights), contributes towards the need for larger properties than in the city centre.

In 2003, budget operator Travel Inn opened its largest property yet. Located at Heathrow the 590-room hotel also ranks as the largest budget hotel in the UK. February 2005 should also see the addition of another budget property, the 350-room Jurys Inn. An operator is also being sought for a new development adjacent to Terminal 5, which will add a further 600 rooms to the market.

Although there have been suggestions that hotel pricing is beginning to stabilise, elements of price-discounting (particularly in terms of short-term tactical gains) are nevertheless still apparent at Gatwick and Heathrow hotels. However, increased business confidence as well as continued improvements in air passenger traffic should generate more long-term benefits for local hoteliers.

Notes: All analysis in Euros.

The HotelBenchmark Survey contains the largest independent source of hotel performance data outside of North America and tracks the performance of over 6,000 hotels and 1.2 million rooms every month.