Hotel profits hindered by ‘escalating payroll costs’

The increasing growth of payroll costs is hampering the ability of UK hoteliers to increase profit, according to a new study from hospitality intelligence firm HotStats.

The study – Benchmarking Beyond RevPAR – polled a consistent sample of nearly 45,000 hotel bedrooms across the UK over a 15-year period. It revealed payroll now comprises as much as a third of a regional hotel’s cost base.

Profit per available room at hotels in the regions has dropped by 26.8% in the last 15 years, to £30.49 in 2015 from £41.67 in 2000. During the same period, payroll levels have increased by 25.6% on a per available room basis, equivalent to an uplift of 4%, to 32.1% of total revenue in 2015 from 27.5% in 2000.

One of the key drivers of growth in payroll levels over the last 15 years has been an 80% increase in the national minimum wage, up from £3.70 in 2000 to £6.70 in 2015.

Alongside this, the report said managing payroll levels will remain a challenge for UK hoteliers as the number of hotel staff employed on minimum wage contracts in the UK is projected to increase to 40% by 2020.

In the regions, the 28.7% increase in payroll per available room played a “significant role” in the drop in departmental profit conversion to 69.2% in 2015 – from 75.1% in 2000. Despite this, the picture in London is more positive as the pace of growth in revenue offset the 21.3% increase in payroll.

Pablo Alonso, CEO at Hotstats, said: “it is not hard to understand the acceleration in the development of limited-service hotels when it is ‘the service’ which is now the biggest cost of a hotel operation.”

“The ability of UK hoteliers to manage payroll levels could be further tested if the fallout from Brexit triggers a significant policy change regarding immigration to the UK.”