DEMAND REPORT: Hotel occupancy recovery continues, while profit risks deepen

March/ April 2022

Since our last demand update report in February, the UK hotel sector has enjoyed consistent occupancy and revenue growth as Q1 draws to a close. However, since that time the world has faced an equal threat to covid, and our recovery is now exposed to different risks, mostly related to protecting profit margins.

Firstly, an update of the current UK performance compared to other similar size economies shows we are continuing to fare well using  SiteMinder’s World Hotel Index tool:

• UK is tracking 10% behind March 2020 occupancy, good news if we look back to the opposite end of the graphic and where we were in April ’21.
• UK Cities achieved mixed progress across the regions, London buoyed by a strong return of international travellers.
• Booking momentum mix, with international travellers making up a third of UK hotel bookings currently at 28.6%, March 2020 as the lockdown started this was less than 20%.

UK compared to the Rest of the World.

Booking Momentum – broad numbers show the UK only 10% down on traditional spring demand

Observations: in isolation this suggests a strong recovery getting towards pre-covid occupancies, however we need to factor other risks to get a full picture for forecasts into Q2 and beyond.

UK cities focus, regional disparity continues

Booking Momentum by City – table below compares daily bookings made as a % of year prior, comparing momentum across a section of different UK destinations.

Observations: a mixed bag across different regions, with London leading the pack for the first time, no doubt as a direct result of returning international travel – see below.

Strong return of international travel

Booking Momentum mix – table below compares the mix of UK hotel bookings from domestic and international sources, March 2022 almost 30% of UK hotel bookings when March 2020 was under 20%.

Observations: as we have seen previously as restrictions lift pent up demand is driving higher levels of international travellers, will this sustain for forecasts as we move into the better weather?

So the general trends point to a sustained recovery with volumes growing back towards 2019/20 levels, which is consistent with other data sources, for example, if we look at this article from Hospitality Net with a specific focus on Europe and what looks like very little effect from the situation in Ukraine.

Profit margins at risk

However, there are now other factors to consider as big risks when looking at Q2 forecasts, including:

• Hotel’s re-opening or returning from alternative use – data sets do not include all closed hotels or those used for temporary alternative uses over the past 24 months, businesses must look locally to see if this will dilute expected market share.
• Staycation 2022 we doubt will live up to 2020 and 2021 now restrictions on air travel have been removed. An early indication is Brighton and Bournemouth in the graphic below, these locations were leading the UK occupancy last year but trends are reversed in 2022.

• Labour shortages continue to limit capacities and increase salary costs just to retain teams and standstill. Additionally, National Minimum wage is set to increase on 1^st April which equates to a 6.6% rise across the board if the gap between entry-level employees and supervisory/ junior management is to be retained.

• Covid arrears and forbearance end – the long list of accrued liabilities and arrears will now come into view, including,  unpaid taxes to HMRC, unpaid creditors as the moratorium on insolvency ends 31^st March, and forbearance on probably higher levels of borrowing and senior debt all need to be addressed.

• Supply pricing – the situation in Eastern Europe has exacerbated winter inflationary pressures, particularly food and general cost of sales items, utilities and fuel which impacts all cost and overhead lines.
• Forecasts therefore will not be straightforward, with capacities and demand uncertain alongside high inflation we are suggesting a need to re-evaluate financial drivers to establish new baseline norms and fully review operational structures and processes.

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We maintain impartiality and independence free of any fixed portfolio, offering support services across all disciplines – sales and revenue growth, marketing, finance and reporting, procurement, and compliance. Our flexible contracting ensures affordability, with emphasis on the development of the hotel’s senior management team and therefore better returns for investors and stakeholders.