National minimum wage increase hits bottom line of UK hotels
Cost pressures, including the recent national minimum wage increase, are hitting the bottom line of UK hotels despite charging higher room rates, according to the RSM Hotels Tracker.
The data, which is compiled and produced by Hotstats and analysed by RSM UK, shows labour costs per available room were up from £15.32 (March) to £16.62 (April) in the UK and from £20.65 to £22.16 in London, due to the rise in national minimum wage (NMW). However, gross operating profits (GOP) of UK hotels have remained flat at 31.4% in April and 36.8% in London, largely in line with the same month last year and are lagging behind pre-pandemic levels – highlighting a NMW hit to the bottom line.
Occupancy was flat year-on-year in the UK at 74.5% in April, but reached 78.4% in London, up from 77% the previous year. Occupancy rates continue to creep back up to pre-pandemic levels of 77.6% (UK) and 79.7% (London).
Average daily rates (ADR) of occupied rooms were flat year-on-year in the UK at £139.51 in April, but down from £207.86 (April 2023) to £203.81 (April 2024) in London. However, room rates are significantly exceeding pre-pandemic levels at £110.24 (UK) and £169.76 (London). RevPAR of UK and London hotels were static last month when compared to the previous year, at £103.90 and £159.72 respectively.
Chris Tate, head of hotels and accommodation at RSM UK, said: “While UK hotels have been able to charge higher room rates when compared to pre-pandemic levels, they’re seeing little of this making its way through to the bottom line. Ongoing cost pressures, the latest being the increase in national minimum wage, are chipping away at their operating profits. For some hoteliers, the fierce competition for hotel staff over the last couple of years has meant they are already paying above minimum wage. However, a rise in NMW has a knock-on impact as it ripples through the rest of the workforce as higher paid staff demand similar percentage increases.
“The weather continues to dampen demand. But there’s hope this will change as we enter into the summer months. With better weather on the horizon, inflation set to fall back to the Bank of England’s 2% target in June and real wages rising, consumer confidence should continue improving, which will bring some summer cheer to the hotel industry.”
Thomas Pugh, economist at RSM UK, added: “April was a tough month for consumer businesses with miserable weather keeping them out of shops and putting them off house viewings. It seems a similar picture for the hotel sector as well.
“However, there are good reasons to expect spending on hospitality services to grow from here. First, households’ real disposable incomes are set to rise rapidly from April as inflation drops back to near 2% and tax cuts kick in, which will boost overall consumer spending. What’s more, consumer confidence should continue to rise ensuring that households spend most of their new income.
“Admittedly, spending on hospitality services has been relatively strong recently when compared to spending on goods. There may be some catch up spending on retail goods over the next year, especially as goods prices look set to fall. However, the increase in consumer incomes means that even if consumers restock on retail goods, they should also increase spending on hotels and accommodation.
“What’s more, a strong dollar and rapid growth in consumer incomes will make the UK a more attractive destination for visitors from America. Similarly, as the European economies rebound, demand for travel from the continent will increase.”