Hoteliers suffer as room rates fall to five-year low

Bargains for tourists, but hotels struggle to break even as rateshit 2005 levels

The scale of the battle facing hotels is laid bare today by datashowing that average room rates will fall back to 2005 levels overthe next 12 months and the industry will not move into recovery modeuntil late next year, according to PricewaterhouseCoopers.

The accountant forecasts that the UK's average room rate (ARR)will fall by 8.1 per cent to 77.69 a night in 2009, down from 84.53last year - the biggest drop since 2002, when rates fell by almost 6per cent.

Robert Milburn, the UK hospitality and leisure leader at PwC,said: "While rate declines will slow at last, economic and travelfundamentals remain weak, and despite accelerating cost cuttingprogrammes, the evidence points to more savage trading at the end ofthe year." Next year, he said, consumers should find the ARR acrossthe country is 76, a similar rate to that of 2005.

While the rate of decline in room rates will ease in 2010, therewill be no growth in revenue per available room, or revpar - a keyperformance metric for hotels. PwC forecasts that revpar, whichaccounts for occupancy rates, will fall to 52.38 in 2010, down fromthe 53.67 forecast this year.

While the hotel sector has been hit by a myriad of problems,arguably the biggest problem facing the industry is businessescutting back on corporate travel.

Whitbread, the company behind the successful budget Premier Innbrand, has suffered from business customers staying for shorterperiods than last year. This month, the group, which also runs CostaCoffee shops and pub restaurants including Beefeater, said itsrevpar fell by 9.4 per cent in the 24 weeks to 13 August, and itslike-for-like sales were down by 7.7 per cent.

Alongside its half-year results in September, Alan Parker, thechief executive of Whitbread, said: "I am pleased with the tradingfigures that we announced last week. Premier Inn's total sales havebeen maintained in what is still a very challenging tradingenvironment. Evidence suggests that business travellers are tradingdown from three- and four-star hotels to find better value for theirmoney and our Premier Offers deal is attracting new price-consciousleisure customers to our hotels."

However, for smaller, independent hoteliers, falling revpar andARR can be a lethal cocktail, when combined with debts. StephenBroome, director of hospitality and leisure atPricewaterhouseCoopers, said: "My gut feeling is that there will bean increase in insolvencies in the industry [in 2010]." However, hepointed out that banks had been more lenient with hoteliers recentlyand the level of insolvencies in the sector was less severe than theearly 1990s.

In July, PwC said the number of hotel owners becoming insolventhad rocketed by 120 per cent since June 2008, but the rate ofcollapse in the second quarter actually declined as businesses werespared by banks.

Mr Broome said: "We expect lenders to focus more intensely onhotel debt levels this autumn. So far we have seen an inclination toseek alternative financial restructuring that is less likely tosimply result in further losses through debt writedowns."

But occupancy rates in London have fared better than the rest ofthe UK during the recession. PwC forecasts that occupancy rates willfall by just 1.2 per cent in 2009 in London, while they will tumbleby 6 per cent in the provinces.

Hhoteliers are more optimistic about the future than six monthsago. In March, PwC found all but one of its respondents werepessimistic in their outlook, but in today's survey 71 per cent ofthose surveyed say they are more optimistic than they were then.

PwC forecasts that UK revpars will increase slightly in the finaltwo quarters of 2010 to be down by just 2.7 per cent and 1.2 percent, respectively.

Independent operator feels the pinch as customers focus on price

Mark Bryant's family has owned The Swan Revived inBuckinghamshire for 25 years, but 2009 has been its toughest todate. Mr Bryant, the current owner, has been hit by a cocktail ofcost pressures, but falling average room rates is one of the biggestchallenges it faces.

While the recession has only added to the downward pressure onroom rates at The Swan Revived, an old coach house in the markettown of Newport Bagnall, the internet and proliferation of newhotels being built nearby has exacerbated the situation.

Mr Bryant said: "Business is very fragile and has been droppingconsiderably for the last couple of years, but it has really beenbad since January. However, we are starting to see light at the endof the tunnel."

He added: "The room rates have been decimated. Two years ago, Iwas selling them for 85 a night for a single room, includingbreakfast, but they are now about 50 to 60. This comes straight offthe top line, which affects the bottom line."

Hotel operators putting up a host of brand-spanking new hotels innearby Milton Keynes has not helped The Swan Revived - a 3-star, 40-room hotel, either.

But the internet has also driven down prices rapidly. Instead ofnegotiating on the phone with hotels, customers now just log on to aweb site and pick the cheapest price, Mr Bryant explained: "Peopleare not putting any value on the services... They are just lookingat the price. We cannot see how we are going to get room ratesback."

With a 25 per cent rise in energy bills over the last two years,maintenance costs for his hotel and red-tape associated with theever-changing labour and health and safety laws, it is easy to seehow small independent hoteliers are struggling.