Insolvencies and job losses in the UK’s hotel sector caused by the pandemic are likely to increase through 2021 as businesses face a very tough year ahead, according to global hotel consultancy HVS.
“While strong gains in top-line revenues when they come, will be cause for celebration, operating profits will be anaemic and less than half of 2019 levels in the Provinces and around a third of 2019 levels for London hotels. When fixed costs are then deducted many operations will be loss making and will experience negative cash-flow until further strong revenue gains can be made in H2 2021 and beyond,” says HVS London chairman Russell Kett.
Independent hotel businesses with constrained financial resources or liquidity are expected to be the hardest hit, while larger groups and owners with capacity to inject additional funds will be less at risk.
Kett says that more staff are likely to be let go across the sector, businesses breaching banking covenants and mounting unpaid debts will be forced to call in the receivers and declare bankruptcy, and as operators start to run out of cash many will close altogether, causing further job losses.
This is likely to happen for many independent businesses in Q2 of 2021, warns Kett, especially those that have managed to stay afloat during the first quarter when some of these insolvencies will start to arise.
Kett says the sector needs urgent Government help and recognition, although warns this could come too late for many of the UK’s smaller businesses.
“Support is needed now so that these businesses will still be standing to capitalise on the upswing later in the year. The hotel and wider hospitality sector has been the biggest generator of employment over recent years and it is the only sector with the capacity to rapidly boost employment on the recovery out of this. For this to happen though the sector needs support to see it through H1 2021 and not be exacerbating the employment problem through a lack of support now.
“The UK hotel sector will not be ready to welcome back many of the furloughed staff until well into 2021 and possibly beyond – especially those working in businesses which are hardest hit, such as those reliant on international travellers, meetings, events and conventions. Extending the furlough scheme to the hotel and wider hospitality sector by a further year beyond April 2021 will prevent many of these employees from being made redundant and adding to the unemployment statistics. This allows for the longer-term recovery of certain businesses and, for these, this may need to be further extended,” he said.
Kett calls for the moratorium on business rates to be extended along with the lower rate of VAT of 5% for a further 12 months, to at least March 2022, possibly longer and UK lending banks to permit a continued breach in banking covenants until March 2022, providing certain conditions are met by the borrowers.
“The UK hotel sector has already made a huge investment in ensuring their premises and operations comply with Covid-related health & safety requirements, such that once the national lockdown is lifted they should be permitted to remain operational in spite of local tier regulations. Obliging them to remain closed in such circumstances should not be necessary in future,” he concluded.