MANCHESTER, England — Hotel operations keep getting more expensive in the United Kingdom and the rest of Europe.
Labor costs aren't coming down, governments keep passing tax increases that seem to weigh heavier on hospitality, and rising living expenses for consumers due to trade wars and conflicts are eroding disposable income earmarked for travel. The list of headwinds is a long one for hotel executives, according to a recent panel at the Annual Hotel Conference.
Larger companies across the global hotel industry are a bit more insulated, however. Karin Sheppard, senior vice president and managing director for Europe at U.K.-based IHG Hotels & Resorts, said being a big fish brings benefits.
“When there are risks … instability … we often see that ending up with displaced demand going elsewhere [within IHG], as with the ongoing conflict in the Middle East, for example,” she said, adding such developments also increase domestic staycation demand across IHG's U.K. hotel portfolio.
And in an evolving tech world, concerns such as cyberattacks must center around preparation and communication to keep staff secure and owners reassured, Sheppard said.
“How do you take that down all the way to a single hotel? In the broader spectrum, we can provide tools, advice and help,” she said.
Hotel leaders must focus on what they can control and keep a diverse group of partners and stakeholders in their corner, said Dimitris Manikis, president of Europe, Middle East and Asia for Wyndham Hotels & Resorts.
“I am not a Liverpool fan,” Manikis said, referring to the soccer team not too far down the road from Manchester, “but its motto is 'We will never walk alone' … we are all in this together. That happened in COVID-19, when we shut our hotels and thought that was it, but we came back together.”
In the U.K., hoteliers have rallied together around potential business rates and taxation increases. This summer, the hospitality industry has aligned against the pickup in government talk about introducing wholesale United Kingdom tourism levies, a political football that has not disappeared with the July election of Prime Minister Andy Burnham.
Higher taxes affecting hotel demand is one of the biggest risks across Europe, said Ronen Nissenbaum, CEO of the United Kingdom, Ireland, Benelux, Spain, Portugal and U.S. development at Fattal Hotels. He added such decisions by non-hoteliers can dramatically swing tourism trends.
“Customers have choices,” he said. “We need to do more as an industry to combat this.”
Amsterdam added a value-added/sales tax on hotels of 12%, which is soon to increase to 25%, Nissenbaum said that decision has “dampened significantly the demand for Amsterdam; yes, the hotels suffer from it, but the local businesses suffer from it, and the income declines.”
Fewer hotel rooms and less revenue inevitably leads to less investment in what were once prime destinations, he said.
“It is a vicious cycle. So, how do we react? That’s our job. … How do we organize ourselves to discuss that. There are some countries that are better than others in doing that,” Nissenbaum said.
Hoteliers must continue to advocate for the hospitality industry in their markets, said David Anderson, president, Aimbridge, Europe, Middle East and Asia.
“Hospitality in the U.K. is one of the largest contributors to [gross domestic product], so [politicians] should be looking after us,” Anderson said.
He added that the recent rise in U.K. employer National Insurance contributions was one policy change that was detrimental to hiring additional hotel staff.
Manchester, meanwhile, has a tourism levy that is administered commendably, Anderson said. It shows in data where funds go and had hoteliers sitting on the board.
It's incumbent on politicians that such taxes and funds have positive impacts, he added.
Underlining investment
Hotel investors also demand a clear return for capital expenditure projects, panelists agreed.
“It is the niceties, as in, let’s make that area a little more inviting, that are being pulled back. It is prioritizing CapEx, not stopping it,” Nissenbaum said.
There is nothing that sounds worse than mention of deferred CapEx, Anderson said. The biggest risk in not having CapEx in place is that it might prompt highly motivated and performing hotel management firms to simply walk away. He added that the goal is to work both with brand and owner to get the right balance that helps everyone.
Wyndham’s Manikis, whose firm is 98% franchised, said the book of brand standards continues to shrink.
“You have to be pragmatic. … Do you have to have an iPad to manage your room temperature? No,” he said. “At the end of the day, a brand is only real because of the guest experience.”
Boosting the bottom line starts with helping the top line, said IHG's Sheppard.
“How do you create incremental revenue? If a guest is happy, they will pay more, and they will be more likely to return,” she said.
Advantages for hotel operators include in-house procurement programs, cloud-based data-sharing and comp set-analysis services, advice and tools around upselling, and, yes, AI systems.
Anderson said his first hour in the office revolves around studying the revenue per available room, payroll and gross operating profit margins of Aimbridge's portfolio.
“I look at those three things every day,” he said, adding that every general and regional manager is provided with the best data, advice and performance fixes.
Payroll as a percentage of expenses is less now than it was a year ago, which owners love, Anderson added.
And AI adoption across the hospitality industry is broadly about opportunity, Sheppard said.
“How we run the business, how guests find our hotels. The risk is more the realization that the core notion is delivering great experiences for guests,” she said.
One repercussion of AI is that it is becoming increasingly difficult to drive top-line revenue if the hotel does not deliver the promise guests expect, Sheppard said.
AI is making things “increasingly transparent. … Rapid change in how consumers find us, compare us and book us, with technology and AI in particular,” she said.
Despite the headwinds and the unknowns, there's plenty for hoteliers to be excited about.
“I believe that everyone who has a hotel is in for a good ride. There will be headwinds. Penciling deals is getting more challenging, but there will be demand for our hotels,” Nissenbaum said.