Travel disruption from Middle East conflict begins to hit London hotel stays
Occupancy of London hotels fell in March, in early signs that the Middle East war is hitting international travel, according to RSM UK Hotel Tracker.
The data, which is compiled and produced by Hotstats and analysed by RSM UK, shows occupancy of London hotels fell from 76.3% to 74.8% in March year-on-year, but rose slightly from 73.2% to 73.6% in the UK.
Average daily rates (ADR) of occupied rooms in London rose 5% from £181.25 to £190.24 in March year-on-year, and was up 3% from £132.25 to £136.78 in the UK. Revenue per available room (RevPAR) increased from £138.25 to £142.37 in London and from £96.75 to £100.65 in the UK.
However, gross operating profits decreased in London from 33.6% to 32.6% in March year-on-year and from 30.1% to 29.5% in the UK.
Chris Tate, partner and head of hotels at RSM UK, said: “The immediate impact of the Middle East conflict has started filtering through to the hotel industry, with London occupancy taking a hit. Ongoing travel disruptions will have inevitably put a stop to some international tourists’ plans, while business trips may have also been put on hold. The above inflation increase in room rates will have offered some reprieve to hoteliers and cushioned the blow to occupancy levels, but that didn’t reach the bottom line due to increased employment costs.
“Looking ahead, hoteliers will be particularly concerned of prolonged disruption to the travel and hotel industry as the Iran war continues to drag on. However, despite sluggish growth in the economy, households still seem willing to spend on hotels and trips away. Consumers are also sitting on high levels of savings, with over a fifth planning to save less in the coming months to cover rising costs, which may help to provide a buffer.
“Growing concerns around jet fuel shortages could result in fewer inbound tourists to the UK and less business travel, but domestic travellers opting for a UK staycation instead may partly offset this. However, there will be more headwinds for the industry to navigate, as higher wages, rising energy and business rates bills, and lower consumer sentiment feed through in the coming months.”
Thomas Pugh, chief economist at RSM UK, added: “It is now inevitable that the UK will be faced with another bout of stagflation. Higher fuel costs, energy bills and food prices later in the year will push inflation to a peak of around 4%. At the same time, the hit to the economy will grow as fuel prices eat into disposable incomes and the labour market weakens further. We have already seen a drop in consumer confidence.
“Admittedly, consumers are entering the crisis with a high savings ratio meaning there is scope to save a bit less to offset the hit from higher inflation. However, the longer the crisis goes on for, the more likely households are to curtail discretionary spending.
“The good news is that inflation probably won’t peak until near to the end of the year meaning that the critical summer months for hotels may not be impacted as much, but the squeeze on disposable incomes may hit future bookings harder.”