Signs of hope despite tough start for hoteliers

After months of tumultuous trading conditions which saw insolvencies soar and occupancy levels plummet, the hotel industry is beginning to see some light at the end of the tunnel.

Recent figures from PKF Hotel Consultancy Services show that hoteliers across the UK experienced a difficult first six months of the year with declines in occupancy, room rates and revenue per available room (revpar).

Between January and June this year, London hoteliers experienced a 7% decline in revpar compared to the same period last year. This was a combination of a 0.8% fall in occupancy and a 6.6% drop in room rate from £126.67 last year to £118.72 this year. In the regions, the picture was even worse. Year-to-date figures at the end of June show a 15.8% decline in revpar from £47.80 to £41.27, occupancy down 6.9% and room rate down 7.3%.

In June, the story in the regions was the same with room rate down 8% from £71.98 to £66.26; occupancy down 4.2%, while room yield was down 13.4% from £54.03 to £47.64.

But preliminary figures for June reveal occupancy levels in London have started to increase again, going up by 1.4% on the same month last year from 84.2% to 85.5%.

Robert Barnard, partner for hotel consultancy services at PKF, said: "Hoteliers across the UK have certainly had a difficult year so far, but there are some signs to suggest that the industry will have a slightly better second half.

"The figures for June show that more cities were able to achieve either an increase, or smaller decrease, in occupancy than experienced hitherto, which is a positive sign."

In separate findings by analyst PricewaterhouseCoopers (PwC), the market finally saw a long awaited drop (4%) in the quarterly UK hotel insolvency rate, although it's clear that trading conditions remain tough.

Another positive sign is that the number of hotel businesses becoming insolvent, which had increased by 120% since June 2008, declined in the second quarter of the year.

Despite hotel insolvencies peaking in the first quarter of the year, with 15 London hotel groups collapsing, an increase in tourism due to the weak pound has seen the second quarter return to the average rate of six hotel business failures per quarter.

Stephen Broome, director of hospitality and leisure at PwC, said that the majority of hotel failures in the second quarter had been independent single-asset businesses that had "passed the point of no return". He added that he expected lenders to focus more intensely on finding alternative means of funding rather than simply writing the debt off, which would mean a lower rate of hotel-related insolvencies.

Broome said: "Often these alternative strategies will involve some form of debt for equity swap, with the hope that as hotel values recover lenders will be in a position to recover their investment in full.

"However, lessons from the 1990s recession tell us that it may take between five to seven years for values to bounce back enough for this to happen."

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By Gemma Sharkey

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