Exclusive: Hotels struggle with double whammy of staff costs and pressure on room rates
Hotels struggled with falling profit in April after margins were squeezed by higher staff hosts and price pressure on rooms.
UK hotel payroll costs increased from 31.6 per cent of revenue to 33.3 per cent in April year-on-year, and from 29.5 per cent to 31.4 per cent in London, according to RSM.
A slight reduction in hotel room rates, from £138.29 to £137.54, put further pressure on margins.
While high demand boosted occupancy year on year, it wasn’t enough to offset these twin effects.
Gross operating profit fell from 31.8 per cent to 30.1 per cent in April in the UK and from 37 per cent to 35 per cent in London.
Head of hotels at RSM UK, Chris Tate, pointed out that hoteliers “continue to find it challenging to pass on rising costs to price-sensitive consumers”.
While a difficult pill for hotels to swallow, this is good news for inflation – and the Bank of England’s interest rate.
“Even though headline CPI inflation jumped to 3.5 per cent in April, this was almost entirely down to utility, tax rises and the late Easter.
“We saw little evidence of firms passing on the increase in employment taxes and that is backed up by the data for hotels,” Thomas Pugh, economist at RSM UK, added.
Consumer spending on hotels ticks up
Rising consumer confidence is a boon for the hotel industry.
Three separate measures of consumer confidence all ticked up in May, with analysts suggesting that the “worst has passed”.
“The signs suggest that consumers are getting a bit more comfortable with opening their wallets, which will be a strong tailwind to offset headwinds,” Pugh said.
He added that UK households’ real incomes have risen over the past few years, ultimately the core element of consumer spending.
Annual growth in average weekly earnings – excluding bonuses – hit 5.9 per cent in April, according to the Office for National Statistics (ONS).
“Consumers still want to get away,” Tate said. “The challenge is now sustaining this momentum, particularly against the challenging economic and geopolitical backdrop.”