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Global downturn bites the UK hotel sector
However, reduced consumer spending as a consequence of the global financial crisis is starting to take its toll. In September, average room rates across the UK were down 0.5% which marks the first month of average room rate decline since April 2006, a month in which results which were skewed due to Easter falling in March 2005. In comparable periods, this is the first decrease in average room rates since August 2003 when the industry recovered from the war in Iraq and SARS.
Hotels in London helped boost UK year-to-September results with revPAR up 6.4%. A 6.7% increase in average room rates is solely responsible for this growth as occupancy dipped 0.3%. However, in September, emulating the UK-wide trend, average room rates decreased 1.2%.
The economic downturn to date has affected hotels across regional UK to a greater degree than in London and year-to-September 2008 results show a mere 0.1% increase in revPAR, caused by a 1.7% drop in occupancy while average room rates continue to grow by 1.8%. In September 2008, average room rates grew 0.4% over the same month in 2007 but occupancy showed accelerated declines.
The biggest winner in the UK is Liverpool, this year's European Capital of Culture. The many cultural, artistic and sporting events being staged have drawn tourists to the region and hoteliers are enjoying the extra business. Liverpool was the only city in the UK to achieve double-digit revPAR growth year-to-September 2008, up 16.0%. This was driven by an 8.3% jump in occupancy and an increase in average room rates of 7.2% to £71. Reflecting the national trend though growth was weaker in September as revPAR fell out of double-digit territory, up 9.8%.
Commenting, Alex Kyriakidis, Global Managing Partner of Tourism, Hospitality & Leisure at Deloitte said: "Despite the current volatile economic conditions, UK hotel performance has to date achieved positive revPAR growth. Recent data released by ONS, reports that international tourist arrivals also increased 2% year-to-August 2008. Although year-to-date results remain in positive territory, recent months are starting to show decelerated growth as the financial crisis deepens.
"The ONS tourist arrival year-to-August data shows a considerable shift in the nationality of visitors to the UK with tourists from countries that joined the European Union after 2004, up 20%. This jump is making up for a 7% drop in visitors from North America and stagnant arrival growth from the EU 15.
"Long-term marketing strategies that take changing demographics into consideration are a vital component in filling hotel rooms and absorbing the considerable amount of new room supply in the UK pipeline. VisitEngland is launching a £1.5 million marketing campaign this autumn to promote short breaks and experiences in England. Meanwhile the Commission for Architecture and the Built Environment is heading up a £45 million government project to regenerate the English seaside."
Looking ahead, Marvin Rust, Hospitality Managing Partner at Deloitte, said: "Following the turmoil among some of the world's largest financial institutions and with many of the key global economies facing likely recession in the months ahead, the final quarter of 2008 may prove challenging for hoteliers across the UK. Whilst London has supported the overall UK performance so far it is fair to say that it is the market with the highest potential for falls.
"As a result, hoteliers need to consider how they will respond if consumer spending tightens further and the use of revenue management tools will become increasingly important. Rate discounting can create price wars between hotels and growing average room rates back to previously achieved levels is difficult. Creating innovative ways of attracting guests is now more important than ever and incentives that will boost occupancy such as a package to include say dinner or spa treatments may work out to be a better strategic option."
UK city performance - year-to-September 2008*
Occupancy (%) Average Room Rate(£) RevPAR (£) RevPAR % Change
* Preliminary year-to-September 2008 results
All analysis in UK£
In this press release references to Deloitte are references to Deloitte & Touche LLP, which is among the country's leading professional services firms.
Deloitte & Touche LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu (‘DTT'), a Swiss Verein, whose member firms are legally separate and independent entities. Please see www.deloitte.co.uk\about for a detailed description of the legal structure of DTT and its member firms. For more information, please visit www.deloitte.co.uk.
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