UK Hotel Profit Drops by 9% in October

UK Chain Hotels Market Review - October 2008

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. November 28, 2008

NOVEMBER 27, 2008. The UK chain hotel market reported a 9 per cent fall in profit this October, according to the latest HotStats survey from TRI Hospitality Consulting. The amount of profit generated per available room - expressed as income before fixed charges (IBFC) - fell to a daily figure of lb49.76 compared to lb54.70 the same month a year earlier.

Lower profit was primarily the result of higher costs and a shrinking pool of demand. The sample of 509 UK branded hotels reported a 3.2 percentage point drop in average occupancy to 77.4 per cent.

'For most UK hoteliers the effects of the economic downturn were clearly felt in October. With fewer guests and higher operational costs, pressure on profitability was inevitable,' said Jonathan Langston, managing director, TRI Hospitality Consulting.

In the Provinces, average profit as a percentage of total revenue in October fell year-on-year from

37.6 to 35.1 per cent. An increase in the national minimum wage which came into force on 1 October may have contributed to the rise in costs. Provincial achieved average room rate dropped by 1.9 per cent to lb73.72 which, combined with lower volume, led to an 11.2 per cent fall in daily IBFC to lb36.88 per available room.

Profit grows in Liverpool and Newcastle

Some city markets bucked the trend, however, increasing both average room rate and profit thanks to local events. Liverpool's European Capital of Culture status made it a popular leisure destination during the half-term break, and a series of major football fixtures kept demand high. Average occupancy rose by 1.9 percentage points to 81 per cent. In Newcastle, the Great North Run helped daily IBFC increase by 6 per cent to lb44.32 per available room.

'Even in a recession there will be demand peaks, and hoteliers will be able adjust their rates accordingly to gain the maximum benefit,' said Langston.

Looking at the year so far, the first 10 months of 2008 show London still achieving positive albeit below-inflation revenue and profit growth. Total revenue per available room increased by 3.4 per cent to a daily figure of lb137.28 and daily IBFC was up by 2.8 per cent to lb63.90.

The Provincial data for the year so far shows a 1.4 per cent decline in total revenue to lb100.04 per day per available room and daily IBFC PAR down by 5.3 per cent to lb32.81.

Overseas spend down by 2 per cent

In the three months to September 2008, total overseas visitors to the UK decreased by 3 per cent to

9.3 million, according to the latest Government statistics. The amount they spent while in the UK dropped by 2 per cent to lb5.14 billion.

Visitors from Europe were up by 2 per cent to 6.6 million, while those from North America dropped by 21 per cent to 1.2 million. Visitors from the rest of the world were down by 7 per cent to 1.5 million, compared to the same three-month period a year earlier.

In more recent data, BAA, the operator of seven UK airports including Heathrow and Gatwick, reported handling 12.4 million passengers during October, a year-on-year drop of 6 per cent. Year to date, BAA's UK airport traffic shows a decline of 1.9% for the ten months to October at a total of 125.8 million.