Hoteliers see staff costs rise amid pressure on room rates

A rise in staff costs in April, as a result of changes to national minimum wage and employer NICs, combined with pressure on room rates led to a decline in profits for hoteliers, according to RSM.

UK hotel payroll as a percentage of revenue increased from 31.6% to 33.3% in April year-on-year, and from 29.5% to 31.4% in London, as a result of the budget changes.

Average daily rates (ADR) of occupied rooms in the UK fell from £138.29 to £137.54 in April year-on-year and from £198.98 to £196.88 in London. However, UK occupancy ticked up from 75.1% to 77.8% in the same period and from 78.1% to 80% in London.

Increased demand meant revenue per available room (RevPAR) rose 3% year-on-year to £106.98 in the UK and by 1% to £157.45 in London.

That wasn’t enough to offset the increase in costs, with gross operating profits down from 31.8% to 30.1% in April in the UK and from 37% to 35% in London.

Chris Tate, partner and head of hotels at RSM UK, said: “The hotel sector was hit with a double whammy in April as they battled with a rise in employment costs combined with deflationary pressure on room rates. In fact, accommodation services inflation fell 1.2% year-on-year in April as hoteliers continue to find it challenging to pass on rising costs to price-sensitive consumers. As a result, they are working harder to sell more rooms and passing on costs this way, rather than charging higher rates.

“Encouragingly, consumers still want to get away, with the late Easter and sunny weather boosting occupancy and mitigating some of the cost pressures in April. While the increase in occupancy filtered through to the RevPAR, the bottom line still took a hit, but it could have been much worse. The challenge is now sustaining this momentum, particularly against the challenging economic and geopolitical backdrop.”

Thomas Pugh, economist at RSM UK, added: “The disruption from US tariffs and subsequent surge in uncertainty last month doesn’t seem to have stopped consumers from spending money. Indeed, we saw stronger retail sales, hotel bookings and pub spending in April. This is probably a reflection of UK households’ real incomes rising strongly over the past few years and, ultimately, that is a bigger driver of UK consumer spending than US trade tariffs.

“Admittedly, the economy will weaken in Q2 and is now facing a series of headwinds, including tariffs, uncertainty, higher taxes and slower global growth, which it wasn’t facing at the start of the year. That means growth will probably come in around the same as last year at a little over 1%. But the signs suggest that consumers are getting a bit more comfortable with opening their wallets, which will be a strong tailwind to offset all those headwinds.”