Summer Boost for Hoteliers Absorbed by Higher Costs as Profit Margins Stand Still

Hoteliers were able to hike room rates in June as demand held strong, helped by the good weather, but profit margins stood still, according to the RSM UK Hotels Tracker.

The data, which is compiled and produced by Hotstats and analysed by RSM UK, shows average daily rates (ADR) of occupied rooms in London jumped by 8% from £243.03 to £262.08 in June year-on-year, and was up 6% from £165.33 to £174.69 in the UK.

Revenue per available room (RevPAR) for London hotels rose from £212.68 to £222.55 in June year-on-year and increased from £137.77 to 144.91 in the UK. Demand for hotels also remained high, despite falling from 87.5% to 84.9% in June year-on-year in London and was flat in the UK at 83%.

However, even with higher room rates, gross operating profits were unchanged year-on-year in London at 46.7% in June and rose slightly from 41.8% to 42.2% in the UK.

Chris Tate, partner and head of hotels at RSM UK, said: “Hoteliers are having to work a lot harder to maintain profits in London and see marginal growth in the UK. The hotel industry has proved to be resilient, helped by strong customer demand, which has allowed them to pass on the increase in costs. However, ever increasing room rates are not sustainable in the long-term, and hoteliers must tread carefully or risk putting consumers off as they look for cheaper alternatives.

“The hot weather over summer has provided a boost to the industry and goes a long way in improving consumers’ moods, particularly combined with Andy Burnham’s initiatives to reduce the cost of living, which all helps towards putting a bit more money in people’s pockets. While the hotel industry may benefit in the short-term, the real challenge lies ahead when we enter the colder months and the rain returns, and consumers typically pull back on travel.”

Thomas Pugh, chief economist at RSM UK, added: “Stable occupancy rates in the UK and strong price growth reassure us that consumers have been relatively unfazed by the initial energy shock. That matches the signal from strong retail sales in June as households continue to smooth through higher energy prices allowing hoteliers to pass on costs.

“What’s more, consumer confidence bounced from -23 to -17 in July despite energy bills jumping 13%, which suggests that consumers will continue to spend through the crucial summer months despite subdued real income growth.

“Further ahead, inflation will rebound to around 3.5% in the second half of the year, which will further depress real household disposable incomes. The prospect of another tax-raising Budget may also prompt consumers to hold off on big-ticket items, meaning we expect consumption growth to slow to around 0.2% per quarter in H2, compared to 0.5% per quarter in H1.”