May half term heatwave boosts hotel demand but costs keep profits flat
The hot weather aligned with half term and the late May bank holiday to give hoteliers a welcome boost, as people booked last minute breaks, but ongoing cost pressures meant profits remained flat, according to RSM UK Hotel Tracker.
The data, which is compiled and produced by Hotstats and analysed by RSM UK, shows occupancy of UK hotels rose marginally from 79.4% to 79.7% in May year-on-year, but was flat in London at 82%.
Average daily rates (ADR) of occupied rooms rose 4% in the UK from £150.82 to £156.72 in May year-on-year and increased 4.6% from £209.70 to £219.37 in London. That meant revenue per available room (RevPAR) was also up from £119.74 to £124.84 in the UK and from £171.76 to £179.89 in London.
Despite inflation-busting increases in room rates, gross operating profits were flat year-on-year in both the UK and London at 36.8% and 39.3% respectively.
Chris Tate, partner and head of hotels at RSM UK, said: “What may appear to be small improvements in occupancy should be seen as a positive, as this is based on historic highs. Strong occupancy levels combined with inflation-busting rises in room rates show consumer demand is still there. May’s heatwave timed nicely with half term and the bank holiday weekend, which dealt hoteliers a welcome boost, particularly with consumers currently favouring last minute bookings. Without the good weather, there’s every possibility that growth would’ve gone backwards.
“Despite the increase in top line, this failed to filter through to profits due to the high cost burden faced by the hotel industry. Previous tax changes, such as the National Insurance rise, increases in national minimum wage and high energy costs highlight the limited capacity hotels have to absorb any additional costs. As a result, hoteliers are working incredibly hard to stand still.
“With an imminent change in government leadership, hoteliers will be hoping the new PM provides greater support for the industry, such as helping to bring operational costs down.”
Thomas Pugh, chief economist at RSM UK, added: “Even with the recent drop in oil prices, the latter half of the year continues to look tough for consumers, with real household disposable incomes set to all but stagnate this year as the weaker labour market weighs on pay growth.
“The good news is that consumer confidence is holding up slightly better than expected so far and households are saving a large portion of their incomes, which means there’s scope to offset the impact of weaker real income growth on spending by saving a bit less. Indeed, the savings ratio already declined from 9.6% to 8.9% in Q1, which allowed consumption to jump 0.6% despite a fall in real household incomes.
“In any case, consumption growth is likely to average just 0.1% per quarter over the rest of the year as the weaker labour market, higher inflation and persistent domestic political uncertainty all weigh on activity.”