Hoteliers Have To Fight Harder To Maintain Profits In October

The UK hotel sector remained resilient in October despite budget speculation ramping up, but hoteliers had to work harder to maintain operating profits, according to the RSM Hotels Tracker.

The data, which is compiled and produced by Hotstats and analysed by RSM UK, shows occupancy of UK hotels rose from 80.9% to 82.4% in October year-on-year, and was up from 84.2% to 85.8% in London.

Average daily rates (ADR) of occupied rooms also increased in the UK from £151.81 to £155.03 in October year-on-year and was up from £217.80 to £222.64 in London.

Despite lower-than-inflation growth in room rates, the combination of higher occupancy and increased rates saw RevPAR growth keep track with inflation. RevPAR rose from £122.88 to £127.76 (a 4% increase) in the UK and from £183.48 to £191.20 (a 4.2% increase) in London.

However, due to higher costs, gross operating profits were flat for UK hotels from 38.4% to 38.5% in October year-on-year and fell slightly from 43.3% to 43.1% in London.

Chris Tate, partner and head of hotels at RSM UK, comments:
“Shaky consumer confidence in the lead up to the budget, did not appear to filter through to the hotel market in October, as travel and experiences remain a top priority for consumers. In contrast, households appeared to scale back in areas such as retail and eating out as budget jitters took hold.

“While hotel occupancy and room rates improved year-on-year, operating profits stood still in October, suggesting hoteliers are having to work harder but are getting less in return. Plus, just as the sector adjusts to the National Insurance rise, they now have to factor in another increase in national minimum wage next April. For many, this means finding further ways to create efficiencies to avoid hitting the bottom line.

“The concern for the sector is that unless consumer confidence makes a recovery, it may just be a matter of time before it hits the hotel market. The budget saw the Chancellor announce a further freeze on income tax thresholds, which will leave consumers feeling worse off in the future, along with local mayors being granted powers to introduce tourist levies, adding to the price of a UK stay. This could mean the sector’s current resilience is set to be severely tested.”

Thomas Pugh, economist at RSM UK, said:
“The good news is that now the budget is behind us we may see consumer and business confidence start to recover, especially as there won’t be any significant tax increases next year. What’s more, a likely interest rate cut in December and further declines in inflation should support a recovery in consumer confidence.

“However, the labour market is still weakening, and wage growth is set to slow. Real household disposable income growth is set to fall to just 0.4% over the rest of this decade as future tax rises eat into incomes. The outlook is therefore far from rosy for consumer spending, despite the lack of imminent tax rises.”