Hoteliers Hit With Double Whammy Of Rise In Staff Costs And Pressure On Room Rates

Hoteliers were hit with a double whammy in April, as they faced a rise in employment costs, along with price pressures on room rates, leading to a decline in profits, according to the RSM Hotels Tracker.

The data, which is compiled and produced by Hotstats and analysed by RSM UK, shows UK hotel payroll (as a percentage of revenue) increased from 31.6% to 33.3% in April year-on-year, and from 29.5% to 31.4% in London – likely to be a combination of the rise in employers’ National Insurance contributions and National Minimum Wage.

Average daily rates (ADR) of occupied rooms in the UK fell from £138.29 to £137.54 in April year-on-year and from £198.98 to £196.88 in London. However, UK occupancy ticked up from 75.1% to 77.8% in the same period and from 78.1% to 80% in London.

Increased demand meant revenue per available room (RevPAR) rose 3% year-on-year to £106.98 in the UK and by 1% to £157.45 in London. But that wasn’t enough to offset the increase in costs, with gross operating profits down from 31.8% to 30.1% in April in the UK and from 37% to 35% in London.

Chris Tate, partner and head of hotels at RSM UK, comments:
“The hotel sector was hit with a double whammy in April as they battled with a rise in employment costs combined with deflationary pressure on room rates. In fact, accommodation services inflation fell 1.2% year-on-year in April as hoteliers continue to find it challenging to pass on rising costs to price-sensitive consumers. As a result, they are working harder to sell more rooms and passing on costs this way, rather than charging higher rates.

“Encouragingly, consumers still want to get away, with the late Easter and sunny weather boosting occupancy and mitigating some of the cost pressures in April. While the increase in occupancy filtered through to the RevPAR, the bottom line still took a hit, but it could have been much worse. The challenge is now sustaining this momentum, particularly against the challenging economic and geopolitical backdrop.

“Although consumer confidence took a knock in April, this didn’t put consumers off from booking their holidays, so the improvement in confidence in May and continued warm weather should bode well for the UK’s hotel industry. Summer trade in the UK relies heavily on overseas visitors, so the hope is that the continued uncertainty doesn’t derail demand for UK hotels.”

Thomas Pugh, economist at RSM UK, added:
“The RSM Hotels Tracker backs up two trends that we have seen elsewhere in the economy. First, the disruption from US tariffs and subsequent surge in uncertainty last month doesn’t seem to have stopped consumers from spending money. Indeed, we saw stronger retail sales, hotel bookings and pub spending in April. This is probably a reflection of UK households’ real incomes rising strongly over the past few years and, ultimately, that is a bigger driver of UK consumer spending than US trade tariffs.

“Second, even though headline CPI inflation jumped to 3.5% in April, this was almost entirely down to utility, tax rises and the late Easter. We saw little evidence of firms passing on the increase in employment taxes and that is backed up by the data for hotels.

“Admittedly, the economy will weaken in Q2 and is now facing a series of headwinds, including tariffs, uncertainty, higher taxes and slower global growth, which it wasn’t facing at the start of the year. That means growth will probably come in around the same as last year at a little over 1%. But the signs suggest that consumers are getting a bit more comfortable with opening their wallets, which will be a strong tailwind to offset all those headwinds.”