Revenue growth helps offset operating costs at UK hotels

MANCHESTER, England — Robust revenue growth has offset increases in operating costs at UK branded hotels this year, as data experts told UK hoteliers not to be too pessimistic about the future.

Thomas Emanuel, senior director, STR, told delegates at the Annual Hotel Conference in Manchester on Monday (3 October 2022): “I’m going to be unashamedly positive. I think there’s a lot of concern out there, quite rightly, but ultimately when we look at our data, things are looking good.”

He said UK hotels’ recovery from COVID-19 had been rapid and average occupancy of 75% compared very favourably with other western markets.

He added: “Average rates have been very strong and come back aggressively. Compared to 2019, the premium in average rate is about £30, so that’s a big jump.”

Even when adjusted for inflation, UK average daily rate (ADR) has been ahead of 2019 levels since June.

Emanuel expected ADR to continue growing by 1-2% next year for the UK regions and 3-4% for London hotels.

Michael Grove, chief operating officer, HotStats, said that for the six months to August 2022, total revenue per occupied room was up 12% compared to the same period in 2019.

The UK’s golf resorts have benefited from a significant rise in the sport’s popularity with golf revenue increasing by a remarkable 38%. (Grove noted that the increase in golf revenue at US hotels was even higher at 70%).

Research on behalf of the UK and Ireland’s official golfing bodies reveals that the number of avid golfers has more than doubled, with a big increase in women taking up the sport.

UK hotels also saw a 15% increase in revenue from cancellation charges, and an 8% rise in spa and leisure spend.

The key expense trends to eat into these higher revenue levels were housekeeping labour (per occupied room) up by 31%, kitchen labour up 17%, service labour up 14% and front office labour up 8%.

The increase in utility costs, although notable, was fairly contained, resulting in a 1.7 percentage point rise in utilities as a percentage of revenue.

So, in the six months to August, strong revenue growth generally covered the higher expenses.

Profit margins held up best in the luxury segment (38.1% compared to 38.4% in the same period in 2019). At other full service hotels, the gross operating profit (GOP) margin was 37.3% compared to 39.8% in the earlier period and for select and limited service hotels, the difference was 40.1% versus 43%.

The city markets that succeeded the most in upholding GOP margins were Newcastle, Nottingham and Bristol, while the cities that saw the biggest drops in average profitability were Aberdeen, Swindon, York and Bournemouth.

Moderator Joe Stather, market leader of operational real estate, Questex, asked the panelists for their key advice to hoteliers when looking ahead.

Grove said: “Utility costs are a big risk and a big opportunity. Some economists have predicted we’ll see a bit of a flattening of energy costs next year and if we’re able to maintain some of the rate, we could be okay. It’s also a time to really get into the consumption issues in hotels, the old hotel stock in particular.”

Emmanuel said that only half of tour and group demand has so far returned compared to 2019, pointing to a potential extra source of future occupancy. He commented: “Booking patterns are good and solid. Know your cost base on a granular level, but from a top line perspective, don’t be too pessimistic.”