With WTM London right around the corner, the RateGain team brings you an article about the UK’s hospitality growth story, and what it means for Revenue Managers.

In 2015, London is expected to  receive 18.82 million international visitors, according to the annual MasterCard Global Destinations Cities Index. This makes London the top-ranked international travel destination for the fifth time in a seven year period. This is 6% more than the 2014 number of 17.8 million visits.

PwC’s latest UK hotels forecast, published in September 2015, has quite a few invaluable insights for UK hoteliers.

RevPAR Projections

PwC predicts that UK hotels will continue to see further RevPAR growth in 2015 and 2016.

Here are the projections for the UK as a whole (PwC August 2015 projections based on STR July 2015 data)

2014 2015E 2016E
Occupancy 77% 78% 79%
ADR 84.14 86.96 89.49
RevPAR 64.85 67.98 70.33

And the projections for London are…

2014 2015E 2016E
Occupancy 83% 84% 84%
ADR 139.83 142.29 145.35
RevPAR 116.10 119.20 121.94

As you must have noticed, the growth rate in the provinces (outside London) is a lot more than London.

Let’s have a look at the comparative projected growth rates for 2015…

London Provinces
Occupancy 1% 1.6%
ADR 1.8% 4.6%
RevPAR 2.7% 6.3%

Therefore, the growth story is now being driven by the provinces. It’s important to note, that the 2016 projected RevPAR for the provinces is still 5% below pre-recession peaks in real terms (adjusted for inflation). However, 2016E London RevPAR is 6% above pre-recession peaks in real terms.

We will examine the different factors that are driving this growth in UK and London. Let’s begin by taking a look at how the economy is doing.

The UK Economy

GDP growth in the UK is forecasted at 2.6% in 2015, which would be the highest in the G7. In 2016, it’s projected to be 2.4%. Even though growth slowed in the first quarter, ONS data predicts that it will pick up again in Q2. Positive factors that are contributing to the growth are rise in employment, higher earnings growth, growing investments and lower oil prices – which benefit consumers and most UK businesses.

Notable negative factors are a rising pound compared to the Dollar and the Euro, which makes overseas trips cheaper.

A Positive Travel Outlook

Despite the falling Euro, H1 2015 saw over 16.8 million overseas visits to the UK, growing 3% over 2014. London hotels did really well in 2014, reaching a RevPAR growth of 3.4%.

The Great Britain Tourism Survey reports that 28.7 million trips were recorded in England between January and April 2015. This is an 18%  year-on-year growth and is the highest number of trips recorded in the period since the first survey was conducted in 2006.

Visit Britain forecasts a 2.5% increase in international visits to 35.1 million with a 4.5% increase in expenditure. Overseas business visits continue to grow, Q1 2015 witnessing more than 2 million business visits. This is the first time since 2008 that business visits have reached this milestone.

Both corporates and consumers are expected to keep on travelling more in the UK in 2015 and 2016. The number of people taking domestic short breaks is on the rise, as well as a revival in business travel. One notable event is the Rugby World Cup, beginning in September 2015 which is drawing an estimated 450,000 international visitors.

Room Supply – Growth and Challenges

Demand continues to outpace supply growth in the UK overall, while oversupply is an issue in some localities. Supply is on the increase and above average growth is expected in 2016.

According to PwC, There are now over 38,000 rooms in the UK’s active pipeline, opening from 2015 to 2017.
14,000 rooms are to open in 2015, 16,000 in 2016 and 8,000 in 2017.

Net room growth in the London hotel market has seen 23.6% between 2008 and 2014. Leading this growth have been hotels in the four star segment and branded budget hotels. As the demand for branded budget hotels have increased, 50,000 rooms in the independent and the mid-market segment have closed between 2000 and 2014.

Competition is clearly heating up. Both business and leisure travellers are increasingly using non-hotel accommodations like serviced apartments and new style hostels. Of course, the phenomenon on most hoteliers’ radar are shared economy spaces like Airbnb, Homeaway and Flipkey.

A recent Phocuswright research showed that 9% of travellers in the UK had rented space in a private home or apartment in the past year. PwC research indicates that there 31,000 AirBnB listings available in London and the number is growing. This is clearly a phenomenon that a lot of hoteliers are concerned about.

Key thoughts for revenue managers

All the above has various implications for pricing. Here are a few questions to think about:

  • With the change in the composition of your competition, what changes do you need to make in your competitive set?
  • What does the growing preference for budget options and the sharing economy mean for your hotel? Can that impact your pricing?
  • How can you make the most of the positive growth outlook and make the maximum RevPAR gains?

Meet us at WTM London

We will be happy to talk to you about how your hotel can make the most of the current drivers in the UK hospitality industry to generate more revenue every day.

To discuss the answers to these questions, meet the RateGain team at WTM London.