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UK Hospitality Sector Overview

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An overview of the current state of the UK travel sector, it’s contribution to the UK economy and other related issues (employment law, job types within the industry, the hotel rating system).

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UK Hospitality Industry
Overview of the current state of the sector

by Fergal Bell and Jamie Rose.

1. Introduction

The hospitality sector is a significant contributor to the UK economy in financial, employment and reputational terms. However, similar to the wider economy the sector is experiencing changes and challenges – economic, legislative and technological – which will continue to have an impact in the short to medium term.

2. Contribution of the hospitality industry to UK economy

There are approximately 10,000 hotel businesses in the UK, contributing around £18 billion to the UK economy. According to research by match.com and the Centre of Economic Business Research, dates by couples alone contributed £1.3bn to the hospitality and entertainment industries while the Office for National Statistics (ONS) has calculated that hotels and restaurants, together with distribution, make up 18% of the entire UK services industry.

Taking another tack, the British Hospitality Association and Oxford Economics examined the hospitality industry’s contribution to each of the 406 local authorities in England. They found that the industry directly employs 2.4m people and is responsible for providing £46bn in wages and profits annually to local economies.

The hospitality industry is a key driver of employment in many local authorities. In Kensington and Chelsea 86,000 people work in the sector, comprising 16.8% of the local workforce. The proportion is equally high in a number of other authorities, such as the Isles of Scilly (15.9%), South Lakeland (15.7%), Eden (15.6%) and Scarborough (14.9%). When considering the direct and indirect financial contribution, the hospitality industry is responsible for 39.3% of revenue in the Isles of Scilly.

Strategic initiatives 

In August 2010 David Cameron announced that tourism would be a key part of the UK’s economic recovery and stated his vision that the UK would become one of the world’s top five tourist destinations. The tourist authorities have sought to maximise the value of national and international events, such as the Royal wedding in 2011, the Queen’s Diamond Jubilee and most recently, the Olympic and Paralympic Games. In August 2012 VisitEngland launched a £41 million marketing campaign targeting British tourists via local destination marketing. The three-year campaign is being jointly funded by the Government’s Regional Growth Fund, VisitEngland, in addition to the private sector and is expected to create around 9,000 jobs.

Recent figures released by the Office of National Statistics (ONS) showed that the UK economy grew by 1% between the second and third quarters of 2012, with the growth being attributed to foreign visitors during the Olympics and Paralympic Games. Conversely ordinary and commercial tourism to London appears to have been detrimentally affected by the Games, as the city’s residents stayed away from capital’s bars, restaurants and sightseeing attractions.

Growth in international visitors to the UK has been slow, in common with other sectors of the UK economy. However, numbers have picked up in recent times with a 2.6% year-on-year increase in the second quarter of 2012. Drilling down into the figures shows a 7% rise in visitors from North America and a 5% increase in business travel.

Hotel owners managing resources

Data collected by PKF Hotel Consultancy Services, the professional services firm, shows that hoteliers are managing bookings effectively in the face of challenging occupancy rates. The average daily room rate per occupied room increased by 44.4% in London in the twelve months to August 2012 (from £115.04 to £166.15). This was in spite of a zero change to occupancy rates (82.4%). The strong performance has probably been aided by one off national events such as the Olympic and Paralympic Games. In the regions, hoteliers successfully managed to secure greater profitability even as occupancy levels fell. The average daily room rate increased by 4.6% in the twelve months to August 2012 (from £59.12 to £61.86) despite a fall in average daily occupancy rates of 2% (76.8% v. 75.3%).

The PKF hotel trends survey principally features a wide range of hotels across the UK, many in the 3 – 4 star categories with an emphasis on chain operated hotels.

Disposable Income and the search for value

Figures from the Office for National Statistics show that when inflation is taken into account, national income per person has fallen by more than 13% since the start of 2008. To put this in context, the drop constitutes a reduction in spending power greater than the period following the UK’s two most recent recessions, in the 1990s and following the 1979 oil crash and Winter of Discontent.

Ironically, constraints on income combined with a weakened pound have benefited the UK hospitality industry as British people have found overseas holidays relatively expensive and opted to stay at home. The year on year statistics show a 1.8% and 0.3% drop in the number of people taking overseas holidays, in the first and second quarters of 2012. Instead more people are taking ‘staycations’ or ‘daycations’ (short 2 – 3 day breaks) within the UK.

This pattern of holidaying at home is reflected in the figures for domestic tourism, which show an increase of 2% last year, equating to almost 124 million trips. The research, conducted by consumer strategy research company Euromonitor International represented a recovery from the previous year, when domestic trips fell by 6%. In the view of the organisation: “Value for money, but not necessarily the lowest prices, has become an essential element of holidaying amongst many British consumers; with their disposable income diminishing or anticipated to diminish, consumers are increasingly trying to spend their money wisely and costs of trips within the UK are of high importance in holiday choice.”

The importance of value as a motivating factor is repeated in the pub and restaurant sector, where figures show the real growth in turnover increased by 1.7% in the second quarter of 2012. The part of the sector that has best withstood economic pressures has been the ‘value’ providers – pubs, takeaways, off licenses.

 

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