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Keep an eye on the weather

19 January 2006

Last year will be seen as a good year for the British hotel industry. Although conditions were not easy, UK hoteliers will generally feel pleased with the way things turned out. In my view, and that of most other observers, 2006 should be another good year, with growth again likely to come from increases in average room rates rather than occupancy levels.

However, when making hay while the sun shines, it's worth keeping an eye on passing clouds. The darkest of these clouds contain cost increases that could put a damper on revenue increases.

Best publicised are the energy cost increases which have come through in 2005 and seem likely to affect us all in 2006. These remain a concern and, although they can be managed to some extent through environmentally friendly policies and supplier review, they're becoming a fact of life in the early 21st century.

Other cost areas which will continue to put hoteliers under pressure are rising wage bills, licensing fees, property taxes and the price of keeping up with the pace of technological change.

My belief is that the impact of these cost increases will be less visible while revenues are rising, but they could come back to haunt hoteliers at a later date. That would be a time when revenue growth is less evident, or perhaps even when the next cyclical downturn comes.

At a higher level, it's worth noting that there are fluffy white clouds which add interest to the skies but appear to pose no threat. However, these can suddenly turn angry. Potential concerns to remember include an adverse change in economic conditions, the security environment, and the possible impact from events elsewhere in the world.

Perhaps with parallels to ourselves over the Christmas period, hotel businesses tend to put on weight (costs) during good times, but it can be difficult to shed the weight when normality reasserts itself. It's better not to add it in the first place, but that takes a level of discipline most don't have.

Nevertheless, the most healthy businesses are those that don't suddenly find the need to shed weight quickly during difficult times, and the best time to manage that is while conditions are pleasant.

What are this year's main concerns for hoteliers?

Robert Cook, chief executive, Malmaison and Hotel Du Vin

Maintaining the momentum of the past 24 months. My biggest concern is people forgetting that we're in hospitality - everyone is hiding behind design. When an industry is doing well, it's time to invest in people and the product, and I'm concerned this isn't happening in hotels. We need to invest now in readiness for the next downturn."

Michael Caines, director of food and beverage, Abode

"The challenge is sustaining average room rates because there's more and more competition in the midmarket sector. The EasyJet mentality is drifting into the hotel market and encouraging people to think ahead in booking. You can't ignore the internet. In this very competitive market, it's the challenge of offering more to the customer."

Grant Hearn, chief executive, Travelodge

"The industry needs to clean up its act in terms of a transparency of pricing. We need to stop whingeing and become more proactive, to grow the market. We need to be straight with customers."

Bev King, managing director, Burscha Holdings

"Security in terms of terrorist attacks is probably the biggest risk. Since 7 July, theatres, hotels and restaurants have suffered. The biggest concern is having sufficient visitors. Having a great hotel and destination won't capture a market. Security and public perception of our safety are important. Tourists experience a lot of petty crime too."

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