Keep Calm and Control Costs in 2018

Melvin GoldThe UK has been a country of uncertainty in 2017, fuelled by the drip-drip of 24-hour news. On a macro level it seems that 2018 will see more of the same: Brexit, terrorism, politics, economics and much more besides, writes leading independent hotel consultant Melvin Gold FIH as he makes some predictions as to what lies in store.

But Britons have proved themselves to be resilient folk as has always been the case. Yes, there is much to complain about and much to worry about, but the country fundamentally keeps calm and carries on.

It is perhaps surprising that hotel markets in both London and the regions are ending 2017 in positive territory, strongly so in the case of London. Nonetheless, the second half of 2017 has been tougher, as economic factors produced headwinds and the supply pipeline increasingly moved from the drawing board to reality. Inbound tourism has boomed, the weak pound having seemingly magnetic properties. For the time being the UK appears relatively cheap. That has benefitted London, Edinburgh and the country’s most popular tourist cities.

The brave souls at PWC put their necks on the line every year in preparing the hotel sector’s most widely available forecast. For 2018 they forecast London’s RevPar growth at 2.4% and the rest of the UK at a similar 2.3%. If those levels are achieved, they are likely to be similar to UK inflation, so not much in the way of real growth, but given the way the news is reported and some of the retail figures, it could be far worse.

Of course there are variances by specific location and market, too complex to discuss here. It is also also worth reminding ourselves that regional UK is not a single hotel market, and neither is London.

Although the uncertainties connected with Brexit have adversely affected the currency to create the tourism boom, most hoteliers are more concerned about its effects on costs rather than revenues. The currency change, perhaps exacerbated by the uncertainties of future rights of work and residency, has seen some European workers relocate to other countries. The value of their remittances home was affected by the currency movement. Increasingly hoteliers and restaurateurs bemoan staff shortages and recruitment difficulties and if this prevails – which it probably will – it is likely to cause a more competitive labour market and wage levels rising. The Autumn 2017 budget saw the announcement of a 4.4% increase in the National Living Wage in any case, which is well beyond sector revenue growth forecasts.

Notwithstanding that, there remains a quantum of new hotels still to enter the market in many towns and cities. PWC took that into account in their forecast but nonetheless those hotels need staff and even if they are supported by demand growth they may imbalance the labour market.

This is not the only cost pressure, though. Pension contributions, imported food and beverage, energy, and property taxes are all likely to rise. Thus it is likely that 2018 will be a year which, if hoteliers have reason to complain, it will be about staff shortages and rising costs. Revenues may give less cause for complaint, other than the fact that they fail to keep pace with costs which impacts margin. In such an environment it is the smartest and canniest operators that will have least grounds for complaint.

One thing sure to distract from the other headlines and create inflows of tourists is a royal wedding and we will have one of those in May 2018. Tourism chiefs and hoteliers will raise a glass to the happy couple.

Melvin Gold FIH, is a leading independent hotel consultant and commentator.
More about him and the range of services offered by his company can be found at: www.melvingoldconsulting.com

Members of the Institute of Hospitality will receive your annual statistical report ‘Spotlight on Hospitality’ at the start of 2018, packed full of informed insights into the year ahead. Remember to renew your membership to secure this and many more benefits in the coming year.

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The Royal Wedding will be a welcome boost for hoteliers and tourism chiefs in 2018
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Author: Institute of Hospitality

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