a game of revenue maximization and cost control, Hears Séminaire HVS
London – The biggest challenges facing hotels during this period of high inflation relate to the cost of labor, rising energy prices, managing supply chain issues, cost of debt and the uncertainty that makes budgeting for the coming year almost impossible.
Discussing these issues at a seminar in London last week’Managing and financing hotels through ultra-high inflation’Organized by HVS, Bird & Bird, EP in Hospitality and AlixPartners, an impressive line-up of experts discussed the current challenges facing UK and European hotel revenues, costs and profitability, and the impact on the activity and the financing of mergers and acquisitions,
Session launch Thomas Emmanuel, Senior Director of STR Global, described a positive post-covid recovery for the hospitality sector, both in the UK and Europe, with rates around 25% below 2019 levels and occupancy of 95% of previous levels. ADR growth, he said, was real, rather than inflationary, but “we still need this group request to come back”, he said, “although the gap between leisure and corporate bookings is now starting to close.”
Looking ahead, he predicted a slowdown for the UK sector in September, October and November, although there is likely to be a stronger end to the year and growth in 2023. However, the cost of living has now replaced covid as the biggest concern for the industry.
Catherine CockhillEMEA director of Hotstats, balanced the positive performance of hotels, with the impact of rising costs – including a 30% increase in maintenance labor per room compared to 2019 and utilities up 35% – and for some more than 68%. “Rising costs have not yet impacted profit margins, especially since the strong ADR was able to offset this,” she says, “but there is a need to maintain this excellent ADR as we enter Q4 2022 and Q1 2023.”
A round table chaired by the President of HVS London Russell Kett heard senior representatives from Bird & Bird, AlixPartners, Kerzner, Accor and Jumeirah Hotels discuss the impact of inflation on industry budgeting, supply chain, profitability, refinancing and M&A, as well as answer questions from the public.
“The world has fundamentally changed for those who refinanced pre-covid”, says Bird & Bird’s James Salford. “We’re starting to see people refinance on deals, but the cost of debt is clearly going to be a huge challenge.” Alix Partners’ Graeme Smith said it resulted in a “wait and see the approach” when it comes to raising funds or restructuring, while Salford added that while there was plenty of funding available, the fact that the cost of debt had doubled since 2019 would impact lending. “We’ll see more owners being asked to invest more equity – we’ve seen some portfolio owners selling single assets to generate cash – I think we’ll see more of that in the future,” he said.
Panelists said it was essential to keep existing lenders on their side. “A focus on driving the topline – maximizing rooms and all other accessories and strong communication with lenders to keep them engaged. Control what you can control,” advised Accor Aidan McAuley. Solving supply chain problems Kerzner’s Jan Hazelton said hotels will need to rely on a good general manager who is good at crisis management and can find alternatives. “The other side is development [of hotels] and during the underwriting, it will be necessary to plan for longer construction times”, she said, adding that many of the estimated 122,000 rooms in the UK’s current supply chain were at risk of seeing delays in construction times.
Regarding the rising cost of energy, McAuley stressed the importance of having the basics right, such as energy-efficient lights and zones that can turn off automatically, and making sure that all business management systems are functioning properly. Dealing with rising personnel costs in London, David Nicolson of Jumeirah Hotels said Jumeirah has improved staff benefits with positive results, including providing breakfast, lunch and dinner, organizing more staff outings each year and getting consistent feedback from staff.
“We will see six months of difficulty and then a steady recovery – and the sector will emerge stronger and more experienced to deal with whatever disasters life throws at it,” concluded Kathrin Cockhill of HotStats.
Watch the seminar at https://watch.twobirds.com/secret/78301048/12cecfadb8d1756b9e1da1972eb2d740.
HVS is the global leader in consulting and valuation services focused on the hospitality, restaurant, condominium, gaming and leisure industries. Founded in 1980, the company performs over 4,500 assignments per year for virtually every major player in the industry. HVS directors are considered the best professionals in their respective regions of the globe. Through a global network of over 50 offices staffed by 300 experienced industry professionals, HVS provides an unrivaled range of complementary services for the hospitality industry. For more information regarding our expertise and the specifics of our services, please visit www.hvs.com.