Rising costs wipe out profit uplift for hotels despite strong summer demand

Strong demand from summer travellers delivered strong average daily rates (ADR) and revenue per available room (revpar) growth across the UK hotel sector in June – but experts warned that “ever increasing room rates are not sustainable in the long-term”.

The RSM UK Hotels tracker founded that ADR jumped 8% year-on-year in London to £262.08 and was up 6% to £174.69 in the UK in June.

The data, compiled by Hotstats, founded that revpar rose 5% to £222.55 for London hotels and 5% to £144. This resilient sales performance came despite a fall in demand for London hotels from 87.5% to 84.9% year-on-year, and holding steady at 83% across the UK overall.

Chris Tate, partner and head of hotels at RSM UK, said: “Hoteliers are having to work a lot harder to maintain profits in London and see marginal growth in the UK. The hotel industry has proved to be resilient, helped by strong customer demand, which has allowed them to pass on the increase in costs. However, ever increasing room rates are not sustainable in the long-term, and hoteliers must tread carefully or risk putting consumers off as they look for cheaper alternatives.

Thomas Pugh, chief economist at RSM UK, added: “Stable occupancy rates in the UK and strong price growth reassure us that consumers have been relatively unfazed by the initial energy shock. That matches the signal from strong retail sales in June as households continue to smooth through higher energy prices, allowing hoteliers to pass on costs.

“What’s more, consumer confidence bounced from -23 to -17 in July despite energy bills jumping 13%, which suggests that consumers will continue to spend through the crucial summer months despite subdued real income growth.

“Further ahead, inflation will rebound to around 3.5% in the second half of the year, which will further depress real household disposable incomes. The prospect of another tax-raising budget may also prompt consumers to hold off on big-ticket items, meaning we expect consumption growth to slow to around 0.2% per quarter in H2, compared to 0.5% per quarter in H1.”