Flat February for Hotel Industry with Tougher Times Ahead

The UK hotel sector had a lacklustre February, with flat demand and high staff costs hitting operating profits, which is only set to get tougher as tensions in the Middle East continue, according to RSM UK Hotel Tracker.

The data, which is compiled and produced by Hotstats and analysed by RSM UK, shows occupancy of UK hotels was relatively flat, rising from 71.7% to 71.9% in February year-on-year, but was down slightly in London from 72.9% to 72.3%.

Average daily rates (ADR) of occupied rooms in UK saw a small rise from £125.97 to £128.09 in February year-on-year and was up from £175.99 to £177.70 in London. Revenue per available room (RevPAR) was also up slightly from £90.31 to £92.07 in the UK but was flat at £128.54 in London.

Gross operating profits fell in the UK from 23.4% to 22.3% in February year-on-year and from 26.3% to 24.2% in London.

Chris Tate, partner and head of hotels at RSM UK, said: “The hotel industry had a relatively lacklustre February, with the wider UK market faring slightly better than London. Given demand is weaker at this time of year, hoteliers have maxed out their ability to increase room rates, meaning cost rises are hitting the bottom line. The increase in staff costs, which hotels didn’t have to shoulder prior to April last year, are largely behind the fall in profitability.

“Unfortunately, there are tougher times ahead for the hotel sector. As the Middle East conflict continues, this will weigh on consumer sentiment and their desire to spend on luxuries such as travel and hotels. This, combined with the imminent rise in National Minimum Wage and business rates, and a hike in energy costs, will mean the sector faces a double whammy of lower demand and increased costs in the next few months.”

Thomas Pugh, chief economist at RSM UK, added: “The hotel sector faces a triple blow from the energy crisis. As the one of the most energy intensive service industries, the sector will face a bigger increase in input costs than others. At the same time, rising energy costs for consumers mean a squeeze in disposable incomes that will likely result in a drop in spending on things like hotel stays, especially for the “squeezed middle”. Finally, the sharp rise in travel costs, especially flights, and an increase in business input costs more generally, are likely to curtail business travel. The result is likely to be a reduction in hotels’ margins as both costs and revenue are impacted.”