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Hoteliers Face Energy Costs Fallout From Invasion of Ukraine

Inflation Will Undermine Discretionary Spending For Hotel Add-ons
Terence Baker
Terence Baker
CoStar News
March 7, 2022 | 1:44 P.M.

It is impossible to find anyone who does not share shock and horror regarding events in Ukraine, but it is not the place of a humble hotel industry publication to add to the voices of opprobrium.

Worrying about issues such as the banning of Russian and Belarusian athletes from the Paralympic Winter Olympics, who owns Chelsea Football Club and increased energy costs might sound facile against the backdrop of what is happening in Ukraine.

Energy prices are hitting new heights, both because of a shortage of supply and because Russia is a major provider.

Before the Russian invasion, the United Kingdom’s energy regulator, the Office of Gas & Electricity Markets, known as Ofgem, announced on Feb. 3 that prices — the so-called Default Tariff Cap — would rise by 54% starting on April 1.

That is a severe climb, and a good percentage of the population will struggle to pay the increases, which are set to climb even further due to the unpleasantness in Ukraine.

Prices for petroleum are also rising. The combination of higher household bills and more expense on the roads will dent this summer’s staycation market, which has been the savior of the U.K. hospitality business in both summer 2020 and 2021.

Petrol is not as highly subsidized in the U.K. as it is in the U.S., where huge capital sums are spent on oil and energy exploration.

Demand will continue for the two-week vacation or the new, extended long weekend.

What better way to escape the horrors of the news, even if we all know we are very privileged to be condemning Russian action from afar?

Train fares also are set to increase in the U.K., although not as much as they technically could.

Such fares are by law not allowed to be higher than the rate of inflation, plus 1%, and the current rate of inflation in the U.K. in official January 2022 figures is 4.9%.

That rate is much higher than it has been for a number of years, so train fares also have increased by their highest amount for some time, growing by 3.8% in 2022.

There is more pressure on discretionary spending, and if this reduction does not hit the hotel booking process, it might hit hotel food and beverage, spa and entertainment spending, which might be a treat too far.

This all comes at a time when hoteliers are looking at embracing the entire customer journey to new heights, seeking to increase revenue by providing what customers mostly have missed since March 2020.

Celebrate This Instead

When I lived in New York City, I often attended the annual Ukrainian Festival on East Seventh Street in Manhattan, which was held every May. The festival took place in front of the Saint George Ukrainian Catholic Church.

The longstanding KGB Bar in New York City's East Village flies the flag of Ukraine in support of its people. (Twitter, KGB Bar)

It was, I remember, a jolly affair with national costumes and food, dance, religious iconography and at least one cheesy singer, and this all took place one block from St. Mark’s Place, which was long past its heyday as a center of punk and alternative culture but still maintained some form of an edge.

Ironically, afterwards, my friends and I would head to the KGB Bar on East Fourth Street, which is a small, two-room bar up the top of a flight of stairs in a brownstone. It was adorned with Soviet flags and lots of Communist-era posters and other bric-a-brac that became very collectible and retro-chic after the fall of the Berlin Wall.

New Yorkers are too sensible to criticize or boycott such a place solely because of a design preference, and I see on Twitter the owners have draped a Ukrainian flag over its entrance in solidarity.

In November 1989, the first place I ever ate a meal in the U.S. was at a restaurant now gone called Kiev, which was open 24 hours a day.

I had arrived off a plane from London, with my original plan being to continue to Seattle, but when my first flight was delayed, I had an 11-hour wait. So I headed to Manhattan instead of sitting in the airport.

Pierogies, blintzes and Obolon beer, made in Kiev, were on the menu at the restaurant.

Diners still head to the far more colorful Veselka, which remains open and opened 25 years or so before Kiev did. Now it is serving meals as usual and acting as a support center for Ukrainians.

The hotel and tourism industry in the West has come together to launch Hospitality Helps, which aims to connect Ukrainian refugees needing a hotel room with hoteliers who have them to spare.

The opinions expressed in this column do not necessarily reflect the opinions of Hotel News Now or CoStar Group and its affiliated companies. Bloggers published on this site are given the freedom to express views that may be controversial, but our goal is to provoke thought and constructive discussion within our reader community. Please feel free to contact an editor with any questions or concern.

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