Winter insolvencies maybe tip of the iceberg for UK hotels

Published at 10:01 AM on 04 February 2009

After a 100% increase in UK hotel insolvencies from Autumn to Winter in 2008, the industry should not expect to see a thaw in the Spring, warns PricewaterhouseCoopers LLP today.

 

The fourth quarter of 2008 saw 36 hotel companies enter an insolvency process, double the number of the previous quarter. This means the downturn in demand for hotel services, caused by the global credit crunch, is now starting to have a real impact on these businesses.

Following on from the strong trading experienced in previous years, the firm’s quarterly insolvency statistics show the number of hotel company insolvencies for the whole of 2008 have increased by 98 per cent over 2007.

 

Stephen Broome, Hospitality & Leisure (H&L) director, PricewaterhouseCoopers LLP, said:

 

“Experience from previous economic downturns tells us that the hotel industry is hit later in the cycle than many other sectors, such as retail. This is due in part to extended lead in times for hotel bookings and means that the impact tends to fall six to 12 months later than some other sectors. However, as was experienced in the last recession, the negative impact on hotel performance is likely to accelerate sharply at the start of the technical recession, suggesting these early casualties are just the beginning.”

 

“However, there is some hope,” he added. “The industry is in a stronger position this time around, and the increase in insolvencies we have seen so far is not totally related to the downturn. Many of the failures are the result of a flawed business model, such as unsustainable levels of rent or debt, where the recent downturn in demand has simply dealt the final blow.”

 

Managing hotels in a downturn

 

Many hotel businesses will be tempted to freeze infrastructure investments, mothball new growth hotel projects and defer integrating the latest acquisition. Advertising and recruiting investments are easily cut, as are loyalty programmes for customers and staff. However, some hotel businesses will take a different approach and selectively invest where others are cutting back. These are the businesses that will benefit.

“Hotel businesses that understand the need to develop and implement new strategies can navigate the downturn in a way that makes the most of the opportunities arising. Those who don’t know enough about themselves or the external market will be inclined to take the path of least resistance, leading to defensive and piecemeal actions which can result in reduced service levels and disgruntled clients. Most damaging of all, these businesses risk losing out to their competitors,” he concluded. 

 

 

 

 

 

Q1 07

Q2 07

Q3 07

Q4 07

Q1 08

Q2 08

Q3 08

Q4 08

Hotel insolvencies

10

9

10

15

14

19

18

36

 

 

 

 

 



For more information contact:

Stephen Broome
Assistant Director, hospitality and leisure practi 
Tel:020 7212 8510 
 

Sian. Mannakee
Technology, Telecoms, Entertainment, Media, Hospitality and Leisure, PR Manager, PwC 
Tel:020 7213 2538 
Mobile:07715 484 884 

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