Wednesday, July 17, 2024
Wednesday, July 17, 2024
HomeNewsBusiness NewsJanuary blues but luxury hotels did well in December

January blues but luxury hotels did well in December

The Scottish hotel industry confronted a downturn in demand and room rates throughout January, marking a customary seasonal decline. This is despite average room rates for Scotland’s luxury hotels jumping from £222.07 in November to £292.36 in December.

There were also slight increases in the middle market and budget hotels, from £99.31 to £111.53 and from £86.48 to £97.31 respectively at the end of the year. However, RSM UK believe that challenges will intensify with the looming increase in the national minimum wage (NMW) scheduled for April, as indicated by insights from the RSM Hotels Tracker.

Chris Tate, Head of Hotels and Accommodation at RSM UK, comments, “Labour costs are on the rise, and profits remain stagnant, yet they are still far from pre-pandemic levels. As cost pressures impact profitability, the upcoming national minimum wage increase poses another challenge for the industry to navigate and remain sustainable.”

Hotel occupancy took a larger-than-usual hit following a robust December, dropping from 70.9% to 62.1% in the UK and from 80% to 65.8% in London. Despite the decline, both UK and London occupancy levels surpass those of the same period in 2022 at 59.4% and 59.8%, respectively.

Data from Hotstats and analysed by RSM UK emphasises a significant uptick in total labour costs as a percentage of revenues. The UK witnessed an ascent from 35.1% in January 2020 to 38.3% in January 2024, and London saw a surge from 31.3% to 35.7%.

Gross operating profits (GOP) suffered a setback, plummeting from 35.3% in December to 16.1% in January in the UK, and from 44.2% to 24.5% in London.

Although the GOP aligns with the same period in 2022, it markedly lags behind pre-pandemic levels, standing at 25.2% in the UK and 33.6% in London.

Chris Tate highlighted, “While demand typically wanes in the sector at this time of year, the industry anticipates upcoming challenges. Measures to level the VAT playing field with European counterparts and initiatives to attract international visitors, such as reconsidering the ‘tourist tax,’ would be welcomed in the upcoming Spring Budget to enhance the competitiveness of the UK hospitality sector and support its thriving.”

Thomas Pugh, Economist at RSM UK, offered insights into the challenges faced by the sector, stating, “The hotel sector, like many other parts of the economy, faced a tough start to the year after slipping into recession in the second half of last year. However, the hotel sector faces specific challenges, particularly with the upcoming increase in the national minimum wage and weak economic conditions abroad, hampering demand from overseas. This points to challenging times for hoteliers in the first half of the year.”

Pugh also shared a glimmer of optimism for the future, stating, “Looking ahead to the second half of this year and into 2025, conditions appear more favourable. The expected fall in the inflation rate to roughly 2% allows the Bank of England to consider interest rate cuts. Combined with rising real earnings growth and potential tax cuts, households may feel significantly better off later this year, enabling increased spending, including on travel and leisure.”

 

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