Road to recovery is long and winding for UK hotels

Early indicators show UK hotels, of all shapes and sizes are in for a rough ride over 2009, with nearly 200 per cent more hotel companies becoming insolvent in Q1 2009 than in the same quarter last year.

Up to this point we have mainly seen smaller, stand-alone hotels, with only a few exceptions of hotel companies where debt levels have become unsustainable as demand and profits have declined.

However, new PricewaterhouseCoopers LLP insolvency statistics show the quarter to quarter rate has slowed with a 20 per cent increase in insolvencies from Q4 2008 to Q1 2009 – the highest increase being over 100 per cent from September to December 2008.

Stephen Broome, director, PricewaterhouseCoopers LLP said: “Many hotel groups have seen the benefit of December trading which, despite the downturn, will still have provided some Christmas cheer. With the quieter months of January and February now a distant memory many UK hotels are hopeful of survival through to the summer when all revenues are pinned on the revival of demand from domestic holiday visitors.”

However, following a PwC consumer poll taken over the Easter holidays it is clear that consumers are looking to other forms of accommodation to save funds. The survey poll shows a 12 per cent rise in those choosing to go camping, caravanning or to a holiday park, despite the April showers.

Nearly a third of all UK holidaymakers chose this option, closing the gap on rival hotels and B&Bs. In 2008, 35 per cent of those going away over Easter opted to shell out for a hotel room, a year later this number has dropped to 31 per cent, while the popularity of campsites, caravans and holiday parks has surged from 17 per cent to 29pc.

“It is likely that many of those who remain in the UK over the summer will opt for self-catering, camping, caravanning, holiday parks and visiting relatives, rather than staying in hotels. While current exchange rates should encourage travellers from abroad to visit and may mitigate some of the effects of a post budget fall in consumer confidence, the prospect of a warm and sunny British summer is unlikely to provide much shelter from the storm for hotels, whatever the weather,” Broome added.

London hotels have performed as expected and in line with the PwC baseline scenario (14.2 per cent reduction) contained in the PwC Hospitality Directions forecast released in March this year. Regional hotel room rates have fallen more dramatically than was expected (by 11.9 per cent compared to a forecast of 8.7 per cent). This is thought to be the result of a reduction in corporate demand being substituted by lower rate leisure business.

“Given the slow and rocky recovery ahead we therefore expect to see further room rate declines in both London and regional hotels through until autumn at least. Discounts will not drive additional demand, and are unlikely to persuade those who aren’t planning to travel to leave their homes, or indeed their caravans, but it will help attract those who are,” Broome concluded.

More information:

* PricewaterhouseCoopers

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