Profit decline forecast for provincial hotels in 2011

By Lorraine Heller

- Last updated on GMT

Related tags: Hotel

The pinch on consumer spending will impact hotel performance this year
The pinch on consumer spending will impact hotel performance this year
Hotels across the country have posted a healthy performance in May, but full-year profits are forecast to decline in the provinces as inflation and the VAT rise continue to impact consumer spending.

The latest hotel market data from TRI Hospitality Consulting and PKF Hotel Consultancy Services indicate that while the London market nears its pre-recession levels, the sector outside the capital remains fragile.

"The UK Provincial hotel market continues to face challenging conditions resulting in no revenue growth in 2011. Combined with increasing costs, we forecast profit decline this year," said Jonathan Langston, managing director of TRI.

May boost

Preliminary figures released by PKF on hotel performance in May show a “healthy” performance across the country, with double-digit increase in rooms yield in the capital (up by 16.5 per cent to £118.24) and a more moderate increase in the rest of the country (up by 1.3 per cent to £45.02).

“This is the most positive set of results so far this year, particularly for London,” said Robert Barnard, partner at PKF.

“Hotels in the capital have seen rooms yield rise sharply for the second month in a row and the fact that all hotel classes, from basic tourist accommodation through to high end deluxe operations posted strong results demonstrates the resilience of London as a hotel destination.”

Provinces: 2011 profits decline

Forecasts for the full year remain more cautious, however, particularly for hotels outside London.

Despite an expected increase in demand for volume and value of rooms in the provinces compared to 2010, the impact of tax increases and the higher cost of living on the consumer is expected to kick in this year, prompting TRI to forecast a decline in leisure market room rates.

However, commercial demand for provincial hotels will help to offset this expected dip.

In the provinces in 2011, TRI forecasts no growth in occupancy performance, and only a 1 per cent increase in average room rate, resulting in a marginal growth in revenue per available room (RevPAR). However, total revenue per available room (TrevPAR) is not expected to increase.

Tempered revenue performance combined with increasing operating costs is expected to result in a 4 per cent decline in gross operating profit performance in the provinces, said TRI.

“Corporate and leisure clientele are on restricted and prudent budgets and are therefore seeking value for money. The growth of the budget sector combined with current market conditions has intensified competition, particularly in the mid-market sector in secondary and tertiary provincial locations,” said Langston.

“Whilst we forecast marginal growth in RevPAR performance, it is unlikely we will see a market average increase in total revenue performance for the provinces.”

London: restrained growth

While the London hotel market continues to be more robust, it is also expected to be impacted by the pinch on spending and increase in costs.

"In current market conditions where there are challenges for hoteliers to control operating costs such as payroll with the increase in National Insurance contribution, and other hotel supply chain costs which have increased in the current inflationary climate, profit growth is likely to be more restrained this year," said Langston.

TRI forecasts average room rate growth in London of 3 per cent in 2011, with overall RevPAR growth of 3.4 per cent.

Subdued revenue growth, rising costs and limited opportunity for further operational efficiencies in 2011 are expected to lead to gross operating profit per available room (GOPPAR) growth of 1.1 per cent.

"However, it should also be noted that gross operating profit performance is fast approaching peak pre-recession levels achieved in mid-2008, just before the credit crunch and subsequent recession - a strong recovery in under a four-year period,” said Langston.

Related topics: Hotels, Hotel Trends, Trends & Reports

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1 comment


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