Hotels – Buoyant for Now

The UK hotel sector is feeling the heat.

Read Upside - Autumn 2018

While the sector as a whole has reported steady figures this year due to the weak pound and an improved global economy, the road ahead looks uncertain. Some reports suggest that 1,800 hotels have a 30% risk of insolvency over the course of the next three years, and the sector has seen increased pressure from alternative options such as Airbnb.1

Hotels face difficulties filling vacant positions as the cost of labor has increased. The continued uncertainty around Brexit has resulted in a slowdown of applicants from the EU and has caused some European employees to leave the country. Similarly, the weaker pound has made the UK a less attractive place for Europeans to work. On the flip side, the weaker pound has made the UK an attractive travel destination, meaning the hotel sector has seen increased bookings from overseas travelers.

For those continuing businesses, competition throughout the sector will likely continue to be fierce and margins will likely reduce even further.

Well-established, profitable hotels with low levels of debt and strong capital bases are best placed to navigate through the current storm. By contrast, those with high levels of borrowing and in need of essential modernization will likely feel the impact more quickly. Senior lenders are cautious, and it will likely be difficult to negotiate additional facilities to assist a business as cash flow tightens.

Many hotels may already be facing serious difficulty, and pressure from creditors may be rising steadily.

With a number of UK retailers having gone into administration in the last few months, and inevitably more to follow, the leisure sector is an industry that will naturally follow this course. While hotels typically won’t be the first casualties within the sector, they are certainly not immune.

Hoteliers need to know how to create and sustain a “recession-proof business model.” The warmer months may provide a temporary boost, but with Brexit uncertainty remaining, it is impossible to predict which way the industry will go.

 

Sources:
1 http://insolvencyadvisor.org.uk/blog/are-hotel-insolvencies-set-to-increase-following-brexit

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