UK Inbound Tourism
Can inbound tourism lift UK hoteliers' spirits?
In the run-up to the European Tour Operators Association (ETOA)'s annual workshop, the Hoteliers European Marketplace, the hotel industry is facing a bleak year. Business travel bookings are down, and hotels are facing the prospect of empty rooms and revenue declines like never before. However, there are some grounds for optimism - this year's HEM has more buyers attending than in previous years, with spending power of over €5bn for inbound tourism to Europe in 2009, and there are some very favorable underlying market conditions.
The United States is the biggest source market for Europe and the worst recession in 30 years has forced companies in the United States to reassess their travel budgets. Many have curtailed international travel altogether while others have placed restrictions on executives to fly economy class and downgrade to cheaper hotels.
"Business travel always drops off in December, but this year it would have been further diminished as companies try to cut costs, said Robert Barnard, partner for Hotel Consultancy Services at accountants PKF. "Looking forward into 2009, the weak pound may help bring some tourists back to the UK and therefore into hotels, but on the whole, it will be a more testing year for hoteliers than the last few and they should be continuing to prepare themselves for a downturn in business."
Latest preliminary figures just released by PKF show that in London room rate dropped in December from £139.33 in 2007 to £138.03 in 2008 - a fall of 0.9 percent - while occupancy decreased by 1.2 percent. Overall, this means a 2.1 percent decline in rooms yield for the month from £102.07 in 2007 to £99.89 in 2008.
Year to date figures were a little more positive, with London achieving a 2.7 percent increase in rooms yield for the year from £114.08 in 2007 to £117.19 in 2008: this was mostly driven by a 4.6 percent hike in room rate.
As bad headlines continue to spell out global economic gloom, the tourism industry is looking ahead to 2009 with caution, says James Chappell, Managing Director of STR Global, the benchmarking and research firm for the lodging and hospitality industry. "The recent predictions on the wider economic downturn will make 2009 a tough year for UK hoteliers. The worsening economic conditions started by the banking crisis that has affected economies across the globe have resulted in RevPAR declines in more and more regions," he said.
STR Global monitors figures for occupancy, average daily rates and the crucial measure, rate per available room. Their latest report shows the largest decline in occupancy amongst European hotels to be in Rome and Madrid, which also suffered the biggest dip in RevPAR. Occupancy rates in Rome have fallen 17.5 percent to 72.4 percent and in Madrid by 13.8 percent to 71.1 percent, year-on-year. RevPAR in Rome is down 30.5 percent to $156.22, and in Madrid it fell 24.9 percent to $107.37.
Within Europe the annual percentage change in RevPAR for Berlin, London and Vienna fared tolerably well. Barcelona and Prague had significant falls. "What we are able to see is that those markets with a greater proportion of internationally branded hotels have managed to hold their rate better than others," Chappell said.
A straw poll by the London-based European Tour Operators Association suggests that bookings for educational tours this year are level with those of 2008. Wholesale trade is down by 20 percent. In the leisure sector, reservations for escorted tours are down by about 40 percent and bookings by independent travelers are also down, but this may be largely because they want to wait and see if prices come down closer to the time.
"Americans react to price. If tour operators and their suppliers can lower prices sufficiently, Americans will say 'I cannot afford not to go,'" said Bob Whitley, president of the United States Tour Operators Association (USTOA). "We have seen it many times in the past: when special "specials" hit the stands they sell out in minutes. America always travels if the price is right."
This optimistic view is echoed by William A. Maloney, CEO of the American Society of Travel Agents (ASTA). "The dollar is stronger than for a decade. In this economic climate, the destinations are less crowded and facilities will be very eager for business. And America is now hugely confident of being welcomed everywhere, for every reason," he said. "Everyone should remember the US is still the number one market for Europe. So they have to maintain contact: out of sight is out of mind. Travel is always a life enhancing experience: now it is extraordinary value."
One of the key strategies for coping with the downturn in business travel and restoring some confidence to European in-bound tourism is to get leisure travelers to fill the gap left by absent corporate customers.
Given the volatility of the markets right now, it is hard to assess the extent or impact of this downturn in demand, says Reto Wittwer, president and CEO of Kempinski. "Although business travel has been slowing down in the second half of 2008 and will continue to do so during 2009, Kempinski's portfolio is now diversified in terms of city and resort locations, the group benefits from the traditionally strong leisure segment, which reduces any possible impact."
For visitors to Europe there will be bargains in airfares and cut-price room rates, just as the US dollar has strengthened against the Euro and the Pound. Creative marketing strategies, loyalty schemes and enhanced levels of customer service also have a significant part to play in maintaining and restoring confidence in travel and tourism.
The scale of the economic downturn and its effects on the tourism industry will underlie discussions at the forthcoming Hoteliers European Marketplace. The event is a workshop on February 27 hosted by ETOA that brings together tour operators, online intermediaries, wholesalers and hoteliers. The timing of the workshop event is critical, coming at the height of the contracting season but also just as the recession takes hold.
"More than ever, it is important that buyers and suppliers talk to each other," said ETOA executive director Tom Jenkins. "This is a key opportunity to do business for the coming year. HEM is the only ETOA event open to non-members and is timed to coincide with the height of the contracting period, giving an even greater opportunity to do business with the right people in one day."
"Our principal markets are America and Japan. Both continue to represent the best opportunity for attracting visitors. They have - they continue to have - vast reserves of people who can afford and want to come to Europe," said Jenkins. "Both have seen their currencies surge. The dollar has jumped by 25 percent and the Yen by 45 percent against the Euro. If it holds then Europe will be the best buy for a decade."