When the downturn became official

26 November 2002 by
When the downturn became official

It is just over a year ago that terrorists hijacked two passenger jets and flew them into the Twin Towers of New York's World Trade Center.

Just days after 11 September 2001, the number of visitors to the UK began to plummet. Surveys reported that half of US business travellers and 60% of US tourists said they would now take fewer trips abroad, with obvious consequences for the hospitality business worldwide.

In the first half of this year, when the results of the previous financial year came through, the effect of the "stay home" mentality was made clear as a constant stream of businesses in the UK leisure sector reported poor results.

Downturn in profits
Hilton International, The Savoy Group, Thistle, Six Continents, Chez Gerard, Signature Restaurants, Gaucho Grill and Bank Restaurants were amongst those UK hotel and restaurant groups that blamed a downturn in profits - and in some cases redundancies and closures - on the terrorist strikes.

However, some analysts are sceptical that 11 September caused the direct financial damage that operators claimed. A wider financial downturn had already caused firms to cut back on corporate travel and entertainment bills, and this was causing problems for the industry before the atrocities occurred, they argue.

Chris Rouse of leisure property consultancy Insignia Hotels believes 11 September had an effect only on the small part of the UK's leisure market that depends on US travellers.

"I don't want to downgrade the effect 11 September had on certain sections of the hotel market, but those sections were quite tightly defined," he says.

"The top-end London hotels were affected disproportionately but, in the main, 11 September simply triggered reviews that were probably overdue."

With the first anniversary of the atrocities having just passed, many in the industry believe 11 September has ceased to have a direct effect on most leisure businesses.

Outside London, Rouse believes the terrorist attacks are no longer having any impact because the regional market is much less dependent on US tourists and business travellers.

Hugh Siegle of DTZ's leisure team, adds: "I don't think there is any effect now apart from in the larger chains of hotels, particularly in London, that rely on overseas tourists. For most businesses, after an initial pause, things have picked up well."

Others go further, suggesting that because UK travellers, like their US counterparts, are more likely to stay at home, there has been a positive impact on certain sections of the hotel market in the UK.

Nick Read, brand director of Premier Lodge, says the growth of budget hotel chains has come from the domestic market.

"The UK short break market is a growth sector. There are lots of new attractions in the UK, such as the Eden Project in Cornwall or Manchester's Imperial War Museum North. People who are nervous about flying have more reasons to stay at home," he says.

Sluggish hotels
Nonetheless, within the London hotel sector, many would argue that things are still a little sluggish.

"Even though the hotel sector is slowly recovering, the four-star hotel market in the capital is still struggling and businesses are not expecting to fully recover for another two to three years," says Roger Ahmed, of GVA Grimley.

Parts of London's restaurant sector were hit just as hard as hotels after 11 September, primarily because, like hotels, their profits are partly dependent on foreign visitors.

But opinion is split as to whether 11 September is still having an effect on restaurants. Trevor Shelley of property consultancy Shelley Sandzer, which specialises in London restaurants, believes things have now returned to normal, at least in terms of property transactions.

"For some months after Christmas, business had improved and those parties sitting on the fence in the immediate aftermath of 11 September decided to take a leap," he says.

"We had an enormous amount of activity with both individuals and groups acquiring restaurants, and we have managed to sustain that level up until this point."

Others are less optimistic. Citing the experiences of Fish! and Chez Gerard, which expanded quickly and have had to close units, Mark Cutler of Knight Frank, believes the restaurant sector is still in for a rocky ride.

Nervous economy
The cause of this, he says, is an indirect result of the nervous economic mood that 11 September helped crystallise, rather than the direct fear of terrorism and fall in foreign visitor numbers that rocked the London hotel sector.

"The mid to high-end restaurants are still suffering the effects of the downturn that was exacerbated by 11 September," explains Cutler.

"Consumers are eating out less because they are wary about where the economy is going. That is why growth is being seen in more budget-oriented pizza and pasta concepts, such as Strada."

According to Cutler, the negative mood amongst operators is most intense in London, with restaurateurs now being pickier about where they position outlets. The regional market has benefited as a result.

"Whereas operators might have traditionally only considered London, they are now prepared to look at major regional cities, where they can get better value property, good pedestrian flows and are not so reliant on tourism," he says.

In other sectors, such as pubs, bars and cinemas, the feeling amongst property consultants is that 11 September had little effect, apart from in the very short term, and only in London's tourist hotspots. The reason, says Cutler, is that unlike hotels and restaurants, the majority of such operations are not dependent on tourists or business travellers, and the impact is therefore minimised.

Mixed fortunes for the sector

A year after 11 September, how has your business been affected?

"11 September last year clearly had an impact on the company. Our interim results in May this year saw our hotel operating profits down 41%. It was the worst ever six-month trading period for the industry as a whole. Our optimism for the rebound is tempered in the short-term by continued uncertainty surrounding the pace of recovery in the US corporate sector and long-haul travel into key gateway cities worldwide."
Tom Oliver, chairman and CEO, Six Continents Hotels
"The main effects of 11 September in the UK hotel business were on American tourism and international business travel which affected London and country hotels. The four Hotel du Vin properties are located in provincial cities and towns that are relatively immune to those markets. Our business is driven much more by UK GDP growth and so the last 12 months have been very good to us. We see no signs of it slowing down."
Peter Chittick, finance director, Hotel du Vin

"The areas especially affected were pre and post-theatre meals, due to the downturn in the US market. Bank Aldwych was especially affected because of its positioning in the heart of London's Theatreland. Overall we saw about a 12% reduction in trade. As an operator of three restaurants, two in London and one in Birmingham, we noticed that Birmingham was less affected."
Christian Delteil, managing director, Bank Restaurants
"The events of 11 September have not deterred our progress. Although the Blue Bar and Pan American Club are based at the Albert Dock in Liverpool, our core market is regional rather than the mix of customers, including tourists, experienced by London-based operators. As a result of strong trading, we have been able to acquire property as a precursor to an expansion programme across the UK."
Rob Guttman, managing director, Lyceum Restaurant Co

Licensed and Leisure Property Supplement, September 2002

A joint supplement by Estates Gazette and Caterer & Hotelkeeper magazine

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