Avvio Warns Of Heightened Risk Factors For UK Hotel Businesses

A combination of unfavourable factors is leading to increased pressure on the UK hotel sector according to global hospitality technology business Avvio.

A decline in overseas visitors of 3% last year despite a weaker pound, business rate revaluations, increased popularity of alternative rental accommodation and a drop in conference and event spending in anticipation of Brexit led to a 60% increase in hotel insolvencies to September 2019 representing a five-year high*.

Heightened competition from private individuals renting rooms and properties through AirBnB continues to put added pressure on cities which rely on the leisure and city break market.

In London it is estimated that there are 80,000 AirBnB listings, a large proportion when compared with the number of hotel rooms available in the country’s capital, which stand at just over 159,000.

Edinburgh’s hotel operators have been hit hard with a dramatic rise in private accommodation listings. There are 12,000 private listings for the Scottish capital – almost the same as the number of hotel rooms on offer estimated to be at 14,300**.

Hotel owners in Northern Ireland have voiced major concerns over the recent business rate revaluations which will see some hotels’ rates increase by as much as 55% even though other neighbouring retail businesses are seeing rate reductions.

These revaluations are a significant thorn in the side of an industry that is suffering from the impact of privately rented properties and the aggressive commissions of the online travel agents (OTAs).

Hotel businesses are tough to operate. It can take up to 10 years to see a return on investment with hoteliers having to deliver consistent top-quality service in order to generate repeat business.

A typical hotel will generate an average 65% of its revenue from rooms with the rest split between food and beverage, events and spas – all of which incur significant and variable labour costs. Private rented property does not have to contend with these variables.

Increased business rates will hit revenues and likely force hoteliers to leverage savings on their cost of operation which in turn puts pressure on other inward service and product providers to the industry.

Hotels are a huge driver of employment, providing locally sourced jobs and therefore, making significant contributions to their regional economies.

The hotel and hospitality sector is one of the first industries to feel the pinch when a recession hits or when significant economic events occur such as the banking crisis of 2008.

During tough economic periods businesses and consumers will cut leisure and travel spending first.

These market forces combined with aggressive commission rates from the OTAs continue to eat away at hotel room margins. Some independent hotels are having to pay as much as 30% commission per booking to the likes of Expedia and Even larger chain groups, which can negotiate more favourable fee structures, are still facing fees in the region of 10-15%.

ADR (average daily rate) for UK hotels is forecast to grow in 2020 to £128***, however, rises in inflation mean that in relative financial terms this growth is reversing.

Avvio, which is credited with creating the world’s first AI-powered booking engine Allora, works with hotels in the UK, Ireland, Europe and the US to increase direct bookings.

Commenting on the current market picture, Avvio CFO Seamus Holmes, said: “UK-based accommodation providers are facing a bleak outlook – particularly urban and city centre hotels where competition is fierce, high street retail property is often still priced at a premium and business rate increases are out of kilter with the decline in footfall to many of our towns and cities.

“Many businesses have been fighting on all fronts over the last few years and this is combining to create a perfect storm of circumstances where margins have consistently been eroded by the online travel agents creating a race to the bottom in some regions.”

“We are working with hotels to help them close the gap that has been created by these factors. Hotel businesses have become fair game in a market which is evolving very quickly but we are in danger of seeing more hospitality businesses fail if they carry on being subjected to so many negative commercial pressures.

“To combat these risk factors, hotel owners need to take back control of their own destiny – this can be done by improving guest experience, offering added value personalised services which in turn generate more revenue, increase return visits and improve guest advocacy.”