UK hotel insolvencies hit a five-year high last year, rising by 60% to 144* (year to September 30 2019) from 90 the year before, according to research by UHY Hacker Young
The rise in insolvencies is driven in part by a slowing UK economy, which has caused businesses to cut back on conferences and ‘away days.’ Corporate events are a key source of revenue for hotels – as they provide income from venue hire, room bookings and food and drink.
Hotels are also having to contend with weak consumer demand. Although there has been a domestic boost from UK nationals opting for ‘staycations’, overseas tourist numbers are falling. Visits to the UK by overseas nationals fell to 37.9m in 2018, down by 3% on 2017**.
Competition in the sector has sharply increased following a surge in alternatives, such as Airbnb. Having originally been seen as an alternative to the budget hotel market Airbnb is also trying to increase sales in the premium segment.
The growth of Airbnb has also helped to reset consumers expectations, who now expect home comforts and a low price. If hotels are unwilling to invest to improve their offering, some hotels could face becoming outdated.
Competition from direct competitors has also pushed down room prices, as there has been a surge in the number of hotel rooms in the UK. Last year 15,500 rooms were added to the hotel market with a further 19,300 forecast for 2019***.
Peter Kubik, Turnaround and Recovery partner at UHY’s London office, says: “The hospitality sector is facing a period of considerable upheaval. Those hotels that are unable to fund change face being left behind.”
“On top of that, Airbnb is increasing its market share and not just amongst millennials. Hotels – many of which are lagging behind in their use of technology – are going to have to quickly bring themselves up to speed.”
Hotels are also under pressure to list on sites such as Booking.com, to reach as many potential customers as possible. However, these sites often charge large referral fees reducing hotels profit margins considerably.
Margins are also squeezed by increases in the minimum wage, import costs and business rates. The National Living Wage has increased four times in just over three years, most recently by 5% in April this year reaching £8.21. The weakness in Sterling has driven up the cost of importing food and drink, which, with so much competition in the sector, is hard to pass on to customers.
The number of hotel insolvencies jumps 60% to 144, the highest number in five years