UK operators must put pressure on costs, government
UK operators must put pressure on costs, government
23 NOVEMBER 2016 9:52 AM

Sources believe the U.K. hotel operating landscape is still a very good place to be in business, but practitioners must work together, be aware of costs and actively look for opportunities in order to thrive in volatile times.

LONDON—The United Kingdom still offers hoteliers a sound trading platform, according to sources, and they remain optimistic for 2017 and beyond, although Brexit continues to loom large.

Speaking at business consultancy Deloitte’s recent 28th European Hotel Investment Conference at a panel titled “U.K. operators: Navigating choppy waters?” John Brennan, CEO, Amaris said he was genuinely optimistic, despite a volatile economic environment.

“Consumer spending is up, although corporate contracts are flat,” said Brennan, whose company operates 13,000 rooms in 70 hotels under brands such as Jurys Inn and Mercure and mostly in the U.K. and Ireland

Tony Troy, CEO, Principal Hotels, who has or will have soon an initial four U.K. properties opening under the Principal brand, said he saw U.K. business “steady as she goes,” noting that if there were no further noise and disruptions, he expected his first quarter of 2017 to show 4% to 5% growth.

The rise in staycations following U.K. voters’ decision to leave the European Union in June was giving cheer to Shane Harris, CEO, Jupiter Hotels, which operates 26 assets, all in the U.K. and branded Mercure assets.

“As long as the pound (sterling) stays low. … My biggest concern is what will happen to the British economy,” Harris said.

Peter Gowers, CEO, Travelodge, said he did not see all of the U.K. as a hoteling Elysian Fields but was not worrying overly about Brexit.

“There are pockets of demand in some regional cities,” Gowers said, who added that two-thirds of all new U.K. supply was deriving from either his firm or peer Premier Inn.

“Many are trying to read the tea leaves of Brexit before they’ve even got the tea out,” Gowers said. “CFOs are optimistic, and that should see us through. In the next quarters, we’ll see the effect of Brexit.”

Cost challenges
There is a potentially diametric mathematical principle hovering over the industry, panelists said. Revenue might increase as more tourists vacation domestically, but foreign currency pressure already has resulted in cost increases. The top line might do better, but the bottom line likely will not.

Troy said U.K. cost pressures were coming from a multitude of directions—business rate recalculations, self-enrollment pensions schemes, apprenticeship levies, wage increases and cost pressures on purchases, especially imports.

“Staycations will give us a chance to yield in some markets, and on certain days. Fridays and Saturdays have been the biggest days in terms of (revenue per available room) increases,” Troy said.

Panelists said keeping a close eye on costs does not mean they could not be professional in how they treat employees, but rather they could help curb them by employing more ingenuity.

“The (apprenticeship) levy is the government’s way of saying you need to restructure your training,” Troy said.

“If we’re able to be more innovative across the board and have better service, we’ll be more able to pass on costs,” Brennan said.

“And we have to look ahead, as these costs are coming. What is the quality revenue we can drive?” Troy asked.

Fighting back
One route in which costs could be reduced, panelists said, was to try and reduce online travel agency commissions and “put any costs into things that matter to the customer,” Troy said.

Scale helps ride out such cost impositions, Gowers said, who added the industry needed more sophistication in terms of how it battled the OTAs.

Exactly how to do that remains the big question, panelists said.

Jupiter’s Harris said technology in hotels remains the big opportunity to counter the OTAs, while Brennan said the fight would continue to be a tough one when to many people the “OTAs are the marketplace.”

A dig was made at supposed help given by government to some industries in the wake of Brexit, notably in Sunderland and involving what some allege are undisclosed financial incentives to keep manufacturing plants open to secure employment.

Gowers asked where the hotel industry’s call is that might award it similar incentives.

“We punch well below our weight when equated with the number of staff we employ,” Gowers said. “No one expects special help, but we do expect respect.”

“Join up more. Government respects inward investment,” Gowers said, who added the hotel industry remained a wonderful place in which to be involved. “Show them who is investing. That has traction.”

Brennan agreed, saying that touting investment, not employment, “might not be the best route, but it may be the one we need to go down.”

“The next three years will be about spotting the opportunities, as well as being aware of the downsides,” Gowers said.

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