The first month of the year still is close behind, and even now United Kingdom hoteliers are wondering what more they can expect in 2012.
One of the most interesting parts of my job is being able to look into hotel data for different and diverse markets in an attempt to understand the main drivers affecting everyday business. Relating these observations to macroeconomic and financial events makes it even more exciting, particularly when pondering the possible direction and outcome for the hotel industry.
The balanced mix of business and leisure travelers normally allows hotels to overcome difficult times. However, this year, finding this right balance might prove to be a little more challenging than usual.
Looking at the economic environment
In London, the hotel market is balancing between the anticipated Olympic Games this summer and the contrasting economic and financial news, including:
• job cuts in the finance sector;
• inflation rate growth well beyond the Bank of England’s 2% target;
• indication of a decline in the Consumer Price Index by 2 percentage points, according to the BoE;
• information suggesting rising property prices in the U.K.;
• increasing geopolitical pressures in the Middle East and it’s impact on oil prices; and
• the recent downgrade by Standard & Poor’s of nine eurozone nations including Italy and France, while the U.K. retains its AAA rating.
And then there’s the debt situation and its long-term impact, which is represented in the chart below:
Such financial and political events have an important impact on hotel performance, and particularly in markets such as London, which benefits extensively from international leisure and corporate visitors. The burning question we are all wondering is:
What could hoteliers expect to see in the short term?
The answer might not be as clear as one might want to hear. However, at a market level the impact—should the eurozone enter into a full recession (though, technically some of the countries already have entered recession)—could result into the following outcomes:
• A reduction in disposable income from European travelers visiting the U.K. would affect demand as well as the price these visitors would be willing to pay for their stay;
• business travelers would either see travel budgets reduced or a displacement in room bookings between hotel classes; or
• inflationary pressure would be felt on hotel balance sheets with increasing costs of both goods and utilities.
We can hope that under the new EU presidency of Denmark there is enough political motivation and investor confidence to push the euro into a more positive direction.
Nevertheless, 2012 will be an exciting time for hoteliers in London as major world events—of a positive nature—will attract much-needed media attention well after the curtain is closed.
The most notable of these events are the Olympic Games. However, past analysis with regards to the games in Beijing, Athens, Greece, and Sydney suggest that host cities did not achieve full hotel occupancy throughout the Games because of displaced traditional demand to other destinations and the perception of high room rates.
Likewise, the Queen’s Diamond Jubilee, which in celebrating the 60th year of the Queen’s reign will provide a stage for the city of London around the world. Like other similar events, it mainly will be attended by day visitors coming from around the U.K. and not necessarily visitors staying beyond the event itself.
The good news for hoteliers is that in the short term, new supply, as reported by STR Global, will remain fairly moderate until the end of the year, removing some of the pressures on extensive new competition that other markets experienced when hosting global events such as the Olympics.
Expectations and outcomes for 2012 are impossible to dictate with utmost certainly, and I am sure that you, readers, might have many more opinions on the possible future outcome of 2012. But what matters is that although the journey might go on endlessly, there is always light at the end of the tunnel. No?
David can be contacted on dgrossniklaus@str.com
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