Substantial rises in daily running costs are reducing the profitability of the majority of UK chain hotels, according to a HotStats survey from TRI Hospitality Consulting as featured in Hotel News Resource on Wednesday 17th September 2008.. During the seven months to July 2008 the average profit margin - expressed as income before fixed charges (IBFC) - reported by a sample of 401 provincial chain hotels was 32.1% of total revenue, a 1% drop compared to the same period last year. The reduced profit margin was the result of salaries and other costs rising, while total revenue headed in the opposite direction, dipping by -0.2% to £98.99 per available room. Daily salaries per available room increased by 1.1% to £31.73. Other costs before fixed charges rose by 1.5% to £35.50 per available room, leaving £31.76, representing a 3.1% year-on-year decrease in IBFC PAR. 'In these challenging times, relying on RevPAR alone will give operators, investors and developers a partial and distorted picture of trading. What matters most to any business, after cash, is profit. Only by looking at the movement of total revenue and costs can we gain a truly accurate picture,' said Jonathan Langston, managing director, TRI Hospitality Consulting. The main cost pressures are coming from food and utilities. In July, annual food inflation reached a record 13.7%, and the price of electricity, gas and other fuels rose by 16.1% according to the Consumer Prices Index. 'Hoteliers have to perform a balancing act between cost-cutting measures and maintaining the appeal of their food offer. We understand that room service and bar snacks are selling better than three-course meals,' said Langston. Despite this, overall F&B sales are down. In the seven months to July 2008 average food and beverage revenue at provincial hotels dropped 1.8% year-on-year to £38.25 per available room. In a review of the UK's largest cities, profit margins fell in all locations except London and Birmingham. I n Liverpool, the Capital of Culture programme of events started to pick up momentum from April 2008 onwards. The Gustav Klimt exhibition, the opening of Liverpool ONE shopping centre, and events at the BT Advisor of the Year Convention Centre and Echo Arena are all driving demand into the city, with our hotel sample reporting a 4.1% point increase in average occupancy to 77.4%. Increased demand fuelled an impressive 9.3% rise in total revenue to a daily figure of £106.26 per available room. And yet rising costs even succeeded in taking the gloss off this strong performance. In Liverpool, daily payroll costs increased by 5.1% to £30.76 per available room, other costs before fixed charges leapt by 14.4% to £38.49 per available room, leaving behind £37.01 PAR in profit. Scotland appears to have suffered the brunt of declining consumer confidence and fewer short-break visitors, with both Glasgow and Edinburgh reporting revenue down on last year. According to the Scottish Visitor Attraction Barometer, the total number of visits to Scottish tourist attractions dropped by 2.3% p for the January to May 2008 period, but the fall was greater – down 7% - for tourist attractions in the Glasgow area. This is supported by HotStats data, which posted a 4.1% drop in average occupancy. The UK Chain Hotels sample comprises 510 full-service branded hotels, primarily in the three and four-star sectors, representing more than 90,000 bedrooms. For more information contact: Jonathan Langston, managing director on 020 7486 5191 jonathan.langston@trihc.com www.trihc.com
