Guarded upturn predicted for European hotels and restaurants

Hotels and restaurants in Europe have reported a `guarded upturn` in business confidence with business volumes, revenues and incoming new business all improving, according to a survey.

The survey of 200 companies by KPMG shows that confidence is higher than it was six months ago with 34 per cent expecting growth in their volumes of business activity over next year compared to 22 per cent forecasting declines.

However, KPMG said revenues were not expected to grow as quickly as volume and warned that promotional activity and discounting would continue to play a part in driving trade at the cost of profits. They also said that independent hotels could be hit harder than other parts of the industry over the next year if interest rates rise, because many were currently `treading water on low interest rates.`

Richard Hathaway, head of Travel Leisure and Tourism at KPMG, said:“The sector saw trading worsen into December and January 09 but more recently there is feeling that the rate of decline is slowing and the bottom may be in sight, at least in terms of volume. However, this does still seem to paint a rather optimistic picture given that pricing pressure remains a major issue.

“In the hotel sector, opcos and propcos are feeling the impact of the downturn to differing degrees, creating tension between owners and managers. With propcos seeing their net profits and cash flows hit the hardest and many holding high levels of recently provided leverage, they in particular will continue to struggle for some time."

Jane Moriarty, hotel restructuring partner at KPMG, added: "We have already seen the start of a wave of insolvencies in the sector, having been appointed as administrators to three boutique hotels this month. Unfortunately high fixed costs and a drop off in demand are an irreconcilable conflict and we expect to see many more businesses fall foul of this problem.”

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