By Kunal Sawhney, CEO of Kalkine (www.kalkine.co.uk)
The hospitality sector of the United Kingdom is set to witness a prolonged recovery as the business disruptions and challenges, due to the extended course of pandemic, are likely to stretch beyond the present calendar year.
With more than 140,000 thousand businesses operating within the hospitality industry of the UK, the sector contributes substantially to the national economic output.Alongside providing millions of jobs at various hospitality settings including hotels, campsites, bars, pubs, restaurants, holidaymakers, sports hospitality venues, and tour managers, the sector plays an important role in the overall recovery as services sector output has been thoroughly guided by the performance of these businesses.
The operative difficulties certainly need a different plan of action this time as compared to the measures taken after the global financial crisis of 2008. At that time, the industry recovered very sharply with most of the enterprises realising quick reversal in their commercial operations as there were no health care-related challenges, as a result of which there was no reluctance amidst the people when it comes to going out of their homes, taking a domestic holiday or booking an international voyage.
The gross value added (GVA) through the hospitality industry slipped to 5% during 2009, following the wide range of repercussions of the financial crisis, but it quickly resurrected to 7% between 2010 and 2012, show- casing the pace of recovery and resilient nature of the businesses.
On the other hand, the Covid-led contraction in various sectors has materially impacted the functioning as enterprises were already combatting the aftereffects of Brexit transition period and other geopolitical tensions.The nature of difficulties during the pandemic era has categorically disrupted the scale of operations as maximum number of the homegrown businesses are not able to revive their operations to the pre-pandemic level due to persisting hardships of faltered supply chain and logistics systems, acute limitedness of staff, input price inflation and higher procurement costs.
Considering the peak of the global financial crisis, the number of unemployed people aligned with the hospitality settings were critically less as compared to the number of individuals who had absolutely no work during the nation-wide lockdowns and repeated disturbances to the consumer-facing enterprises as a result of extended course of restrictions and other social distancing mandates.
The measures deployed by the government of the UK to reduce the rate of transmission and daily rate of hospitalisation have taken a huge toll on the businesses as most of the businesses were either told to curtail the level of operations or to completely shut the setups.The profitability of these businesses has gone for a toss as they haven’t had a restriction-free trading period until August of 2021, the time when the government of the UK withdrew the social distancing measures, allowing fans to attend sports events, musical concerts and other large gatherings.
The extent of difficulty still lies with the people looking forward to travelling overseas after the introduction of vaccine passports.The precautionary measures are unquestionably required for the comprehensive health
and social care due to the evolving nature of the coronavirus, the mutating strains and their sub-lineages as people are contracting virus even after completing the two-dose regimen.
Therefore, the complete recovery in the worst-hit areas may take a couple of years from now.The increasing number of double-jabbed people and the smoother roll-out of the booster dose of the vaccine has been a saviour for the economy, as well as the health as immunisation remains the key to defeat the lethal virus.The economy of the UK registered the biggest contraction on record with the real GDP plunging by 9.2% due to the industry-wide disorientation in the businesses.
The employment landscape has been severely disturbed by the shutdowns as country-wide lockdowns were the only potential solutions before the governments across the world to contain the rising spread of Covid-19 (SARS-CoV-2) in the absence of vaccines.As a consequence of rising unemployment rate, the overall consumer spending and frequency of spending dropped month-after-month.
The planned exit from the third national lockdown has consequently helped the businesses to prepare for the resumption of the services according to the permissible activities allowed by the government. Confidence indicators prepared by the Organisation for Economic Co-operation and Development (OECD) have clearly showcased the tightening in the businesses with the consumer and business confidence falling remarkably in the Covid-laden 12-month stretch of 2020.
Shockingly, more than 342,000 people lost their jobs during the peak Covid activity period between February 2020 and May 2021. Even with the extension of government-backed furlough scheme, the employers were unable to hold the workers as they struggled to keep their operations afloat during the pandemic. Of the total job losses during the corresponding period in the UK, nearly 81% of the individuals were employed by the accommodation and food services businesses.
Hospitality businesses with already broken balance sheets were forced to take further lines of credit in order to restart the businesses.This time they were unable to resume their operations at full scale even after deploying adequate resources due to the market-wide crunch of human capital, delays in orders and supply side challenges.
With the upended volumes and quantum of spends during the restricted business environment, the enterprises had to shelve the extra people in order to cut down the employee benefit expenses. But, very few of them anticipated that a higher number of people would be required in the upcoming time as the healthcare administration continues to inoculate the individuals, effectively maximising the level of protection across the country.
Alongside the structural challenges, the businesses in the hospitality industry have been hit by the unprecedented issues due to the pandemic and the Delta variant-led ‘pingdemic’ situation. Most of the corporations in the hospitality sector operate on very thin margins due to the unending surge of volume and influx of people requesting for various services.The hospitality businesses are poised to grow sharply as the consumer spending increases by the time, but they are highly likely to become profitable after a couple of years as they will be obligated to service the repayment of debt accrued during the pandemic era.
However, there are government-aided measures that will help the businesses to slice through the difficult times as the national economic recovery primarily depends on the smoother functioning of these enterprises in the forthcoming period. Going ahead, the functioning of these businesses will be guided by the upsurge in the consumer spending on the hospitality sector as the net spending at the end of May of 2021 was 70% lower as compare to the pre-pandemic levels.
