Unreliable corporate travel forces UK operators to focus on leisure

(UK is seeing influx of leisure travel on back of weak pound)

The corporate transient market is increasingly under pressure as political shocks make forecasting increasingly fragile. Subsequently, it's the leisure market that is being leaned on to pick up the slack, illustrated by the growth in performance in the UK, which has been aided by the drop in sterling.

Across Europe, where elections in Germany, France and The Netherlands are forthcoming, the business environment is becoming more uncertain and operators are looking to leisure for profit.

London Mayor Sadiq Khan is seeking to counter the negative publicity around the EU Referendum vote with the "London is Open" campaign, which has highlighted the savings available to leisure visitors taking advantage of the weak pound.

Visit London said that a family of four from the U.S. could save at least USD140 a day during a stay in the city, a family from Europe could save around EUR115.

“This latest data clearly show London is open to visitors from around the world and offers them great value for money. Tourism is crucial for our economy and we welcome anyone who wants to come and enjoy what London has to offer,” said Khan.

The message is being heard. Data from retail consultancy Global Blue reported that tax-free spending in London by overseas visitors increased by 38 percent in August and 31 percent in September 2016 compared to the previous year. VisitBritain reported that July had seen the highest ever levels of inbound tourism in the UK, with 3.8 million visits.

Corporate Collapse

While the leisure market is buoyed by the chance to enjoy cheap shopping, business travel could be in for potential long-term pain.

Liz Hall, head of hospitality & leisure at PwC, told delegates at this year’s HOSPACE conference in London that: “Uncertainty, volatility and disruption—with elections coming up in Germany and France—are likely to continue into 2017. Business travel will be affected by uncertainty, with corporate travel budgets expected to narrow in 2017.”

Looking at comments made by PwC’s own travel bookers, she added: “Away days were making a comeback before Brexit, but they've now stopped.”

“Concerns over terrorism are also expected to mitigate the impact of the weak pound. We project a decline in real earnings and the weaker pound pushing up prices and confidence,” Hall continued.

While the corporate sector frets, the leisure sector is buoyant, with Hall adding that “Consumers are more confident than they were pre-referendum.”

The latest Hotel Bulletin reported that, in the third quarter, cities with larger tourist industries recorded strong RevPAR growth as international visitors flocked to benefit from a weaker pound, whereas cities outside this group continued recent trends of plateauing or declining RevPAR.

Hoteliers have been able to charge higher rates, particularly in tourist hot spots. In Bath, average room rates increased by 9 percent in comparison to Q3 2015. Hoteliers were able to increase prices as higher rates were still affordable for overseas visitors when translated to their home currencies. Many holidaymakers had made their arrangements for summer 2016 in advance of the Brexit vote, meaning that the positive impact for leisure-focused hoteliers may increase in the coming months.

“The volume mix for the corporate segment has fallen year-on-year in three of the four months to September," said Joe Stather, information & intelligence manager EMEA for CBRE Hotels. "Conference volume mix has declined year-on-year in every month post-referendum. This must be related to companies expressing greater caution in their spending activities pending greater certainty over the future health of the economy.”

Deal Shift

The pivot to leisure is making its presence felt in the transactions market. Deloitte reported that Amsterdam had usurped London as the most attractive hotel investment destination in Europe—this after London had held the number-one ranking for the last two years.

Nikola Reid, director of Deloitte’s hospitality advisory team, said: “Concerns around supply and uncertainty as to corporate sentiment in particular led to London narrowly missing a hat trick.” The regions, meanwhile, were described by Reid as “a more affordable and accessible place to visit for overseas tourists. Furthermore, despite initial uncertainty in the immediate aftermath of the Brexit vote, we have recently seen a rejuvenation of interest from foreign capital driven by their appetite for income and the opportunity to capitalize on sterling’s depreciation.”

A fall in the corporate market may be more nuanced and more a factor of how bookings are made, rather than intent. A study by HotStats reported that the value of bookings via best available rate has increased by more than 235 percent at hotels in the regions since 2000, suggesting that booking patterns are evolving from traditional channels, such as locally-negotiated corporate rates.
Pablo Alonso, HotStats CEO, said of the results: “This is not to say that the volume of commercial demand at hotels in the regions has definitively fallen, but that it is highly likely that alternative methods are being used for business bookings.”
While the fall of sterling has been good for the domestic operators, global hotel companies that have to repatriate cash are suffering. For the nine months to September 30, Meliá Hotels International described weak performance in the UK, which it attributed to “the struggle with the currency effect and the spill-over effects of the terrorist attacks in Paris and Brussels.”

While the pound remains weak, one would expect the leisure market to be stable. There are, however, early signs that the sheen is wearing off.

Robin Sheppard, chairman of Bespoke Hotels, said: “We have found the corporate market sticky for some time, and I don’t think we ever recovered from the downturn, but Brexit has definitely added to the uncertainty and it has dried up, to be smoke-screened by leisure.

“We have seen an extraordinary level of leisure interest, in London, but also in cities such as Chester and Manchester. You would not expect to see that in Manchester, with 90 percent being driven by leisure, comfortably through September. It does feel more like a normal winter now though.”

As the chill of winter hits in the UK, the rest of Europe looks to learn what it can ahead of its own polls.

Katherine Doggrell is an editor at Hotel Analyst, the U.K.-based news analysis service for hotel investors.