Leaner times for hotels but Scotland outperforms UK

Published on Sunday 9 November 2008 19:35

SCOTLAND'S hotel industry has suffered a significant setback as the economic downturn begins to impact on both occupancy levels and revenue.

According to the latest monthly survey, rooms yield – the key industry measure of revenue – in Scotland fell by 6.1 per cent in September against a UK fall of 3.9 per cent, a drop of 2.9 per cent in England and a fall of 11.7 per cent in Wales.

Occupancy levels north of the Border fell by 4.7 per cent compared with a fall of 3.3 per cent for the UK as a whole, a drop of 3.2 per cent in England and a fall of 0.9 per cent in Wales.

The survey by accountant PKF showed that all three of Scotland's main cities experienced falls in both occupancy and rooms yield.

Despite being at the heart of the still thriving oil industry, Aberdeen's rooms yield fell by 7.2 per cent. Glasgow's equivalent fell by 6.3 per cent and Edinburgh's by 6.1 per cent. Occupancy levels dropped by 7.5 per cent in Glasgow, by 4.1 per cent in Aberdeen and by 1.4 per cent in Edinburgh.

The one glimmer of hope for the capital was that occupancy remained the highest of anywhere in the UK, while rooms yield is the highest outside London.

According to the survey, there was continued evidence that budget hotels experienced the largest change in the current difficult economic climate.

Since the beginning of the year the budget market, charging under 40 a room, experienced a 7.4 per cent drop in occupancy and a 9.5 per cent fall in rooms yield, which now stands at 19.38. Mid-market revenues remained stable or even increased with both 50-60 a night and the 60-80 groups experiencing a rise in rooms yield for the year to date of 6.3 and 3.5 per cent, respectively.

Alastair Rae, a PKF partner specialising in hospitality and leisure, said: "The falls in both occupancy and rooms yield are to be expected, given the continuing difficulties in the wider economy."

He said it was obvious that "discretionary spending has been cut by consumers and corporates" and that it remained to be seen whether the Bank of England's action in slashing interest rates would reverse the trend.

Rae added: "Whilst these figures indicate that the sector has returned to negative growth, occupancy and rooms yield remain at a reasonably high level.

"All three of Scotland's main cities have an occupancy level higher than the UK average.

"There is some way to go and, although clearly affected, the strong growth in the sector over the past two years means hotels are well placed to weather the storm."

Ron Hewitt, chief executive of Edinburgh Chamber of Commerce, said: "Given the present climate, our main observation must be pleasant surprise at how well the capital's hospitality sector continues to perform.

"Clearly, any downturn in occupancy or earnings is undesirable, but the small contraction recorded belies the apocalyptic tales we hear about the imminent collapse of the economy."

Hewitt added: "It is also noteworthy that the high-worth end of the market is outperforming the budget end, supporting our view that it is quality rooms where we really need new investment and expansion at this time."

Travelodge aims to replicate budget airline success

ONE of the country's most expansionist budget hotel chains has promised to mirror the tactics of low-cost airlines by cutting prices in an effort to drive "structural change" in the sector.

Travelodge claimed that the last economic downturn resulted in Ryanair and EasyJet securing a customer following that remained loyal when better times returned.

Yesterday, the hotel chain announced a 5 million package of price cuts for the rest of 2008 as it looked to put pressure on its rivals in the mid-market.

It hopes the tactic will result in it replicating the success of budget airlines by building brand loyalty when the economy revives.

Managing director Guy Parsons said: "We believe budget hotels will do the same this time around: mid-market customers will demand value today and reject high prices for good."

But the tactics will raise fears for the future of independent hotels. Recent figures from accounts Pricewaterhouse-Coopers showed hotel insolvencies rose 150 per cent between the end of 2006 and last month. Travelodge, which is owned by Dubai International Capital, admitted it was being approached daily by hoteliers willing to sell as a going concern.

The company has been offering 500 a room to any site or existing hotel that could be turned into one of its own. It has acquired nine going concerns in 2008 and expects many more next year.

Parsons added: "This new landscape will require hotels to offer genuine value to the customer and we believe that can only be good for the long-term success of the hotel industry."

The other major player in the budget hotel sector is Premier Inn, which is owned by leisure group Whitbread.

Travelodge, which has 350 hotels, said its average room rates in 15 UK cities would fall by an average of 10 per cent for the rest of this year, while it is also selling some rooms for next spring at 9.

Parsons added: "By taking sales for next year, we are taking next year's demand out of the market now and away from the competition.

"Our mid-market rivals will be forced into making sloppy, last-minute promotions that will fail to take traction. We our already seeing these hoteliers making panic price cuts in a bid to shore up the falling revenues."