Hotel Performance Holds Up But Uncertainty Ahead Amid Geopolitical Tensions

Occupancy and room rates of UK hotels rose in January, but there’s uncertainty ahead for the industry amid ongoing tensions in the Middle East, according to RSM UK.

The data, which is compiled and produced by Hotstats and analysed by RSM UK, shows occupancy of UK hotels rose from 62.8% to 63.5% in January year-on-year, but was flat in London at 66.7%.

Average daily rates (ADR) of occupied rooms in UK were up slightly from £122.24 to £124.48 in January year-on-year and increased from £172.62 to £177.91 in London. Revenue per available room (RevPAR) was also up from £76.72 to £79.03 in the UK and from £115.37 to £118.65 in London.

Gross operating profits were flat in both the UK at 18.8% and London at 23.9% in January.

Chris Tate, partner and head of hotels at RSM UK, said: “Consumer demand for hotels and travel managed to hold up in January during a seasonally slow month. However, the positive news is that despite having to shoulder significant cost increases last year, hoteliers have been able to manage these headwinds, with operating profits remaining in line with the previous year.

“As we enter Spring and the warmer weather makes an appearance, the hope is that demand will start to gain momentum. But with consumer confidence taking a knock in February, plus ongoing geopolitical uncertainty, nervousness might stick and the hotel sector could suffer a hit in demand due to disrupted international travel. That said, while some individuals may press pause on their travel plans, we could see more overseas tourists opting for a UK holiday or a boost in staycations from domestic travellers.

“Hotels have already worked hard to absorb rising employment costs, but preparing for further external shocks will be essential. As significant energy users, the sector is particularly exposed to any increases in oil and gas prices, which could drive utility costs higher. In an environment of continued market volatility, strengthening operational resilience now will help ensure hoteliers remain well positioned for long-term stability.”

Thomas Pugh, chief economist at RSM UK, added: “The outlook for the hotel sector is now arguably less rosy. Hotels are still one of the most energy intensive service industries, even though the sector has improved energy efficiency by about a third compared to its pre-Covid average. That means hotels will be hit harder than other industries by rising energy costs.

“At the same time, rising energy prices will place a squeeze on consumers’ disposable income, which will eventually weigh on experience-led spending. Firms may also look to curtail business travel if energy prices rise higher, which would represent a further hit to demand.

“Of course, everything depends on how long energy prices stay high for. Consumers are more likely to smooth through a temporary price shock by reducing saving rates, which are currently high. If there is a swift resolution to the crisis, the hit to the sector and economy should be limited. But the risks are clearly to the downside and the hotel industry is more exposed than others.”