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UK hoteliers must look for creative ways to cut costs

20 November 2008 by

There's no doubt about it: the country is heading for a recession. Everyone has to look after the bottom line, but it's important for the hotel sector not to panic and slash rates. Gemma Sharkey has a look at the alternatives

It was only a matter of time. Compared with other parts of the hospitality industry, hotels have proved relatively resilient to the economic downturn, but the worsening conditions are now beginning to bite.

October saw a sharp fall in occupancy, according to InterContinental Hotels Group (IHG), while the forecasts for the coming year make for painful reading. Last week, consultancy firm PricewaterhouseCoopers (PWC) warned that London hotels - usually the most resilient in the UK - are set to face their worst trading conditions in 15 years in 2009. The report revealed that London revenue per available room (revpar) was set to fall almost 12% in 2009, to £82.92 (from £94.28 in 2008).

So how are hotels planning for the recession? At a macro level, major hotel groups such as IHG, Marriott and Starwood have delayed planned new openings, but general managers are also being forced to address costs at a local level.

10% rate cut

Ciaran Fahy, general manager at the Cavendish hotel in London, said he was cutting room rates by 10%, while Richard Young, general manager of the Great Fosters Hotel in Egham, Surrey, said he had slashed mid-week corporate rates from £235 to £145 in a bid to attract conference customers. Meanwhile, budget hotel chain Travelodge made a big splash of its rate cuts, announcing a "prolonged and aggressive price war".

But, while rate cuts can work for budget hoteliers, experts have warned that it can be a dangerous route for many operators. Jonathan Langston, managing director of TRI Hospitality Consulting, said: "As many UK hoteliers confront the prospect of a shrinking pool of demand, deep discounting may seem like the only way to hang on to market share. But, once rate cuts have been made, the climb back to recovery can be very long indeed."

During the 1991 recession, provincial chain hotels reacted to falling occupancy by discounting, but their average room rate did not recover until 2007, according to TRI.

Instead of rate cutting, some hoteliers are offering increased flexibility with their conference and banqueting facilities. Tim Fryer, food and beverage manager at the Royal Garden Hotel in Kensington, London, said: "As people lose financial backing they decide not to go ahead with events. So instead of charging the company a cancellation fee, we now offer them a deferral period of six months whereby, if they rebook in that time, they will not be charged a cancellation fee."

Adding value to the customer offering is another common measure. Andrew Pike, general manager at the Milestone hotel in Kensington, said the introduction of its "Get more from your stay" package (where customers booking online for two to three nights can choose between a £50 voucher for Harrods, a romantic Champagne turndown, or a dinner in its restaurant) has had a "huge uptake" with half of its current guests choosing it.

The downturn also means hoteliers are increasingly focusing on keeping running costs as low as possible, in innovative ways. Tom Orchard, general manager at London's Metropolitan Hotel, said: "We're filtering and bottling water using our on-site system, which will save in excess of £25,000 a year." Greg Crawford, general manager of the Doubletree by Hilton hotel in Cambridge, said the hotel group was trialling the same idea across some of its properties.

Robert Cook, chief executive of Malmaison and Hotel du Vin, said the boutique hotel group had identified "substantial" savings on its laundry bill by using thinner pillowcases for the pillows at the bottom of the pile. Rhys Roberts, managing director of the Best Western in Tiverton, Devon, said the hotel was using low-energy bulbs and introducing a new procedure for night porters to make sure the windows were closed, the doors were locked, and the lights and radiators were all turned off.

Outsourcing?

Then there are the staff costs. Orchard said the Metropolitan was no longer using agency staff and is being more flexible with working time and job sharing, while Crawford said outsourcing housekeeping staff could keep costs down.

With experts predicting that the recession will last until the winter of 2010, it's going to be a cold few months ahead for UK hoteliers. But while any cost saving will help the bottom line, these will have to be carefully managed so as not to damage the brand or customer offering.

Facts and figures

  • 70% predicted occupancy in London hotels in 2009
  • 12% the predicted drop in revpar in London, from £94.28 to £82.92
  • 23% the drop in London revpar if Gross Domestic Product drops by 1.9%

Source: PricewaterhouseCoopers

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