Independent hotels at risk

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Independent hotel businesses with constrained financial resources or liquidity will be hardest hit in the latest lockdown in the UK, according to HVS.

In a column written by HVS London chairman Russell Kett, there were calls for more government support for the sector.

Kett said: “ I have serious concerns for our hotel sector and that urgent attention needs to be given to prevent a meltdown of one of the most important sectors of our economy. 

“Government-led support for the hotel and wider hospitality sector has been a welcome shot-in-the-arm – the furloughing of many staff, business rates holidays and soft loans. However, these are time bound and hotel businesses will need to make crucial decisions in early 2021 that will impact their survival. As hotel businesses come under increasing financial pressure, many of those now furloughed until April 2021 will be let go in an attempt to reduce operating costs, thereby boosting the unemployment statistics. UK Hospitality estimates that 660,000 jobs have already been lost.

“For hotels and the wider UK hospitality sector, 2021 is going to be very tough. While any eventual growth in top-line revenues over 2020 levels will be a cause for celebration, operating profits will be anaemic and less than half of 2019 levels in the Provinces and around a third of 2019 levels for London hotels. When fixed costs are then deducted, many operations will be loss-making and will experience negative cash-flow until strong revenue gains can be made.

“Independent hotel businesses with constrained financial resources or liquidity will be hardest hit.  Larger hotel groups and owners with capacity to inject additional funds will be less at risk. Smaller independent operations that have a more hand-to-mouth existence will be at particular risk.  

"On the demand side, pent-up demand is high, but so is confusion; confidence around making booking commitments is low. As confidence builds on the back of the vaccine roll-out and progress is made in the mass immunisation of the population, and as lockdown conditions hopefully are relaxed by the end of Q1 or early Q2, so with the summer in prospect, that pent-up demand should be unleashed. However, support is needed now, so that these businesses will still be standing to capitalise on the upswing and thus bring the wider benefits to the overall economy with them.”

Last year saw Fitch Ratings comment that there might be opportunities for consolidation in the sector if smaller operators could not get over “liquidity tensions”.

The agency said that independent hoteliers  who  did  not  have  a  portfolio  large  enough  to optimise their  occupancy  rate  ran  the  risk  of  staying  below break-even  levels for  a  longer  period.

It said: “Investment-grade     names,    such    as    Accor or Whitbread, show   better   resiliency   against   this disturbance, which    does    not   constitute   a   driver   of   structural change   for   credit   profiles. We   also   foresee   liquidity  to  remain comfortable, as expected for an investment-grade credit.

“However, a   delay   of   deleveraging, along   with   the   uncertainty around  the  recovery  path, explains the negative outlooks. This  deterioration  of  deleveraging  capacity  is more  acute  in  the non-investment-grade   categories,   where   most companies’ credit metrics are not  back  within  their  guidelines  by  2022, leading  to  rating downgrades.”

Kett suggested that further support could start with the hospitality sector being treated “with the recognition it deserves, such as that afforded to retail (which was allowed 24-hour opening in the run-up to Christmas while severe restrictions were imposed on the hospitality sector).  Hospitality could, with support, provide obvious opportunity for those legions of workers being lost from retail, especially as the effects of a post-Brexit UK gain momentum.

“The UK hotel sector will not be ready to welcome back many of the furloughed staff until well into 2021 and possibly beyond – especially those working in businesses which are hardest hit, such as those reliant on international travellers, meetings, events and conventions.  Extending the furlough scheme to the hotel and wider hospitality sector by a further year beyond April 2021 will prevent many of these employees from being made redundant and adding to the unemployment statistics.  This allows for the longer-term recovery of certain businesses and, for these, this may need to be further extended.

“Extend the moratorium on business rates and keep the lower rate of VAT of 5% for a further twelve months, to March 2022.  At least.  Conceivably longer.

“Encourage UK lending banks to permit the continued breach in banking covenants until March 2022, providing certain conditions are met by the borrowers.

“The UK hotel sector has already made a huge investment in ensuring their premises and operations comply with Covid-related health & safety requirements, such that they should be permitted to resume operations as soon as national lockdown considerations can be relaxed.  Obliging them to remain closed in such circumstances should not be necessary in future in all but the most severe tier restrictions.”

 

Insight: In what has become something of a repeated theme on these pages, it would be just great if the UK government could start recognising the hotel sector and appreciate it that businesses need a little something more than policy on the fly.

Monday 11th January will see a debate in the House of Commons, thanks to the Seat At The Table campaign, around whether it’s time for a dedicated Minister of Hospitality (spoiler: it is) and, even if that’s not the conclusion that is drawn (there appears limited enthusiasm for it from government) then the voice will have got that bit louder.

With Easter and even the summer looking under threat in the UK, there are plenty of funds and companies circling to pick off those who have suffered, particularly the independents. One group’s gain is another’s loss - it would be good for the future relationship of the sector with government if some fightback was possible.