With UK General Election Scheduled, Hotel Industry Hopeful for Sweeping Business Changes

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Major changes could be coming to the United Kingdom’s government much sooner than anticipated. Hospitality leaders say this creates uncertainty, but also opportunity.

On Wednesday, Prime Minister Rishi Sunak announced the U.K. will hold a general election on July 4. By law, the next U.K. election needed to occur before Jan. 28, 2025.

In six weeks’ time, U.K. residents will decide whether to leave control of the country’s government to Sunak’s Conservative Party — which has led Britain for 14 years and five prime ministers — or vote in favor of the opposition Labour Party to form a new administration.

Sunak, the leader of the nation’s Conservative Party, might have announced the election sooner as inflation in the U.K. had fallen to 2.3%, close to the government and Bank of England’s preferred level of 2%.

Hours before the rumored election news broke Wednesday, members of the U.K. hotel industry met on a webinar hosted by business consultancies HVS and AlixPartners and legal firm Bird & Bird.

Kate Nicholls, CEO of UKHospitality, said an election year brings a lot of uncertainty, but also opportunity for real change hotel owners need to thrive.

“There is a sense of being in limbo, a sense of being in waiting, that we need something to change the game, to be game-changing, to happen to be able to unlock that potential, and I think the general election this year could be that transformative act,” she said.

Nicholls said UKHospitality will urge all the political parties as they campaign over the next several weeks to support the hotel industry by easing planning restrictions, overhauling business rates and reducing value-added tax/sales tax, encouraging and aiding employment into the sector and recognizing the huge role hospitality plays in employment and gross domestic product.

It’s imperative that British hoteliers make their concerns known to politicians of both parties, regardless of the election outcome, Nicholls said.

She added the hotel industry must convey to politicians “the benefits the industry can generate, so in this election year, you have a sense of those areas in which we could unlock, because the big challenges at the moment that are holding us back is that debt burden, is that COVID-debt overhang, is the energy challenge, but it is also our labor issues.”

A quarter of UKHospitality’s membership has cut back on opening hours due to there not being sufficient staff — despite an 8% unemployment rate — and a similar number of members say they have run out of cash reserves, Nicholls said.

The Labour Party is polling well among U.K. residents, the BBC reports. Nicholls was careful not to predict the election outcome but said the U.K. would see significant change whoever was elected.

“Even if [political scientist] Sir John Curtice is willing to say that it is 99% certain we will have a Labour government, then you can take it that that is what we’re looking at, and in fact that it what we have been working on for the last 12 to 20 months to be able to make sure that the opposition understands and engages with the sector,” she said.

She said UKHospitality already has had good talks with Labour Party officials.

“We have got a head start on most other sectors since they engaged with us during the pandemic, and we have close relationships,” she said.

Central to those talks are a review, overhaul or even ban on zero-hours contracts, employment rights and real living wages.

While inflation has started to come down in the U.K. and the hotel industry has been steadily recovering since the pandemic, Nicholls said hotel performance gains have relied on room rate increases. Operating margins have not improved as labor costs and energy prices have soared.

“We are still talking of being in a transitive stage. We are still talking about unlocking hospitality, because what we are seeing is quite positive sales growth when we look across the market as a whole, but a large part of that is price-driven,” she said,

Nicholls said that might not be considered to be real growth.

“When you look at the inflation and the headwinds we’re facing, a sales growth of about 3% to 4% is what we have achieved over the last couple of years would normally be that we have unlocked potential, but we are still unlocking it because of that operational challenge,” she added.

Turning top-line revenue into bottom-line profit is the top challenge Nicholls said her members face.

Energy, debt, wages and food prices weigh heavy on the sector in the run-up to the general election.

Now that the period of electioneering begins, starting now but officially running for five weeks between May 30 and July 4, Nicholls said often business confidence plateaus during a “let’s wait and see” period.

There are reasons for U.K. hoteliers to be optimistic this year, including inflation trickling down and a busy events and sports calendar throughout Europe, Nicholls said. While the Euro 2024 soccer tournament will be held across Germany from mid-June to mid-July and the Summer Olympics begin in Paris in late July, Taylor Swift’s European tour has 15 shows in the U.K. through Aug. 20.

Thomas Emanuel, senior director at STR, CoStar’s hospitality analytics division, said the U.K. hotel industry has recovered to pre-2019 levels, but London luxury hotels are seeing average daily rates slowing, and the segment’s “signs of softening having grown significantly in recent years.”

He added the economy hotels sector is also growing well, and the return of corporate demand — expected to be better in the fourth quarter than it is now — will further add to the market’s stability.

Ian Livingstone, international managing director of privately owned hotel firm London & Regional — which has approximately 120 hotels in the U.K., U.S. and mainland Europe — said his U.K. luxury hotels are doing very well but have seen a slight softening in occupancy in recent months.

“Budget [economy hotels] … is doing very well. Rates and occupancy very solid, costs are under control. We love the sector. We’d like to do more of that,” he said. “Midmarket, full-service offerings are quite difficult. We’ve had a lot of cost pressure and difficulty with business travelers returning … they’re looking for cheaper deals. Groups are coming back but slowly.”

From the investment side, Livingstone is seeing few hotels coming to market. He said financing gaps are evident.

He added most of the hotels available are “not great, and we are not buying. … Many of them have had [capital expenditure] withheld due to COVID, cash-flow issues.”

STR is forecasting 3.5% revenue-per-available-room growth for the next year in the U.K, Emanuel said.

He also mentioned Swift’s tour, saying that the U.K. can expect similar uplift that cities in the U.S. enjoyed last year.

“When she was in town, there was a 10% increase on occupancy and a $50 ADR premium as well,” he said.

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