There is a strong argument that the UK hotel sector has been impacted more than most by COVID-19, starting with the initial lockdown where all hotels, with few exceptions (those supporting essential workers), were forced to close their doors in March 2020.
Hotel owners were then allowed to open from July 4, however, operating in the new environment has brought significant challenges. Adapting to meet current guidelines around social distancing, significantly increased cleaning and maintenance costs, introducing policies to ensure guests adhere to the new rules, while also seeing a major decline in food and beverage spend, has led to many hotel operators facing financial difficulty.
It’s fair to say that back in March many observers anticipated the impact of COVID-19 to be much shorter than what has persisted. Looking forward now, we know that many hotel operators are working on the assumption that one of the most profitable periods for the vast majority, Christmas, will in essence be canceled. The reintroduction of localized lockdowns has added further misery to businesses who had invested in being COVID-19 compliant.
Since March, we have worked with a significant number of hotel operators, helping them to secure support through the Coronavirus Business Interruption Loan Scheme (CBILS), agreeing to payment plans and forbearance with HM Revenue & Customs (HMRC) and providing advice to rethink financial models for the remainder of 2020 and beyond. We have also found hotel owners more receptive to exploring alternative options, whether it be a sale, alternative use for property or becoming part of a franchise network, as examples.
While many businesses closed during lockdown, it has not been a time to stand still. Along with reviewing options for business survival, one key action, which Duff & Phelps has encouraged, is for hotel owners and operators to totally review their operating model and, if required, seek external support and guidance in doing so.
This particular crisis has driven changes which previously would never have been considered. In our view, this analysis should include engagement with professional advisors who can encourage, challenge and help implement change.
Looking at the macro level picture, there is some cause for concern across the hotel sector, as detailed in the data below relating to inbound and domestic travel.
VisitBritain anticipated 2020 to be a record year for the UK, with inbound visits forecasted to grow by 2.9% and spending by inbound visitors to grow by 6.6%.1 Office for National Statistics data for 2019 showed that there were 40.9 million (mn) visits to the UK, with these visitors spending £28.4 billion (bn).2 In a no-COVID-19 scenario, this forecast suggested 42.1 mn visits and £30.3 bn in spending in 2020.3
A revised forecast published by VisitBritain in August 2020 anticipates a 73% decline in visits to 11.0 mn and a 79% decline in spending to £6.0 bn.4 Based on the data, a 30.7 mn reduction in visits and a £24.0 bn drop in spending are expected compared with the previous forecast.5
Overall, a very gloomy and concerning view as a result of the current constraints globally around international travel.
It seems many travelers have reverted to a “staycation,” with a massive spike in demand and quality accommodation hard to come by, since the sector reopened on July 4.
However, the overall forecast for 2020 paints a much less rosy picture again from data released by VisitBritain in July 2020. Based on the data, it is expected an estimated £46.8 bn will be spent on domestic tourism in Britain during 2020, which would mean a 49% decrease year-over-year (YoY).6 A significant portion of this is overnight tourism, which is expected to see an approximately 50% decline in YoY spend.7
A View from an Operator
Mike Rothwell, Director of Advisory for Bespoke Hotels, the largest independent hotel management company in the UK, commented: "The coming months will be the most challenging the hotel industry has ever faced. A potential perfect storm is on the radar based on a combination of the effective cancelation of this year’s whole festive season trading due to the 10 p.m. curfew, cessation of furlough, resumption of VAT at 20% at the end of March 2021, winter weather impact, reintroduction of business rates in April 2021, requirement to start repayment of CBILS or Bounce Back Loans, increased pressure from HMRC to collect taxes to support the huge increase in national debt, and of course, the constant Sword of Damocles lingering over the sector with the threat of further local or national lockdowns on top of the new restrictions introduced at the end of September 2020. Of course, the ongoing scaremongering by the government on the risks associated with any type of social contact in hospitality businesses will keep the majority of customers away from our doors as well."
"Smart commercial management is therefore more important now than ever before, and liquidity is key. We urge every hotel business to go back to basics and review the effectiveness of every facet of their business to ensure they remain fit for purpose; whether that be their management and staffing structures, their marketing and sales focus, or their operating cost controls. We are presently undertaking operational independent business reviews for hotels across the UK and providing stakeholders with invaluable recommendations and tools to safeguard their future during these unprecedented times, Mike concluded.’’
Bespoke Hotels, Director of Advisory
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