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Hundreds of UK hotel companies at risk of going bust

20 February 2017 by
Hundreds of UK hotel companies at risk of going bust

Nearly 2,000 hotel companies in the UK risk insolvency as a result of Brexit, according to new research from accountancy firm Moore Stephens.

The company said that around 1,800 UK hotels have at least a 30% chance of going insolvent within the next three years.

While it recognised that a weaker pound may encourage more overseas tourists to visit the UK, and tempt more Britons to take staycations, it also highlighted that visitors are likely to focus on key tourist hotspots, leaving hotels in other, less popular locations struggling.

At the same time, food and beverage costs are set to increase as unfavourable exchange rates push up import prices, adding to already-rising overheads tightening profit margins.

The introduction of the living wage could also lead to further financial strain for small hotels outside cities. Many hotel workers are over the age of 25, and so the living wage affects almost half of the hospitality workforce.

In addition, internet comparison websites have helped to increase price transparency in the sector and often charge hotels a significant commission to advertise. This additional cost and pressure to price competitively can put further financial strain on smaller hotels, which often operate on tight profit margins. Competitors, Airbnb and similar apps have increased this strain, providing lower price options in a wide range of locations. Unlike hotels, Airbnb host do not need to charge VAT, and so can keep prices lower than hotels.

The research said the popularity of budget hotel chains such as Premier Inn may have also had a negative effect on smaller groups, as tourists will often choose budget brands for their low prices, alongside the familiarity and reliability of the facilities.

Uncertainty and a lack of confidence in the economy since the referendum vote has also placed some financial stress on hotel companies. A casualty of this uncertainty is the business travel sector, which has slowed down due to corporate budgets being squeezed, and has resulted in a substantial chunk of hotel custom being cut out.

Jeremy Willmont, head of restructuring and insolvency at Moore Stephens, said: "Greater costs across the board as a result of the Brexit vote and competition from Airbnb are putting some hotels at risk of insolvency.

"Much of the hotel business in the UK comes from overseas tourists and those traveling for leisure. In order to combat any loss from the business sector, hotels should look to attract more custom from tourism, particularly those higher spending foreign tourists, such as Americans and Europeans."

Joanne Allen, head of hotels and leisure, added: "Staff shortages have the potential to get worse if immigration tightens after the implementation of Article 50. In addition to this, small hotels have tighter profit margins, and are often more reliant on seasonal trade. This can make it difficult to budget for the whole year, whilst also putting cash aside for renovations and updates."

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