Business travel - It keeps getting better

Robert Barnard reviews the performance of UK hotels in 2006 and analyses what this could mean for the sector's performance in 2007.

London is one of the most popular city destinations in the world with around a third of all UK hotel beds. The capital's hotel performance is largely determined by economic, political and international factors.

Since the golden year of 2000 when occupancy and rates reached new heights, the capital has been battered by the collapse of the US economy in 2001; 9/11; SARS and the Iraq war in 2003; and the bombings in July 2005. Following each event, occupancy plummeted but the city's unlimited appeal for both international business and tourism has always reasserted itself after a relatively short period.

Forgotten terror

The London bombings in July 2005 meant a difficult second half of the year for the city's hotels, but the month-on-month figures showed that by July 2006, true to form, occupancy levels had re-established themselves.

As the year has gone on, the city has seen even stronger trends. In October 2006, the average room rate rose to £125.79, 10.7% higher than the October 2005 figure of £113.67, and daily room occupancy was also up 7.6% on 2005.

As a result, there was an overall increase in rooms yield of 19.1% to £104.51.

To predict the city's performance in 2007 is difficult. As the London market is largely determined by events beyond its control, there is no certainty that the trends will continue. January's performance could be a significant indicator, as it tends to be a slower month following the traditional downturn of the business market over the Christmas period.

However, in 2006, January started off with a bang, so if this happens again it could be an important indicator for the year to come.

To look to the regions, there is a similar story and 2006 was a year of steady if less spectacular growth. For example, in October there was an overall yield increase of 5.9% to £56.73, with both occupancy and average room rate higher compared to the levels seen in October 2005. Liverpool enjoyed the highest growth in yield, up 7.7% from the same period last year, driven solely by higher average room rate as occupancy fell by 4.2%.

Again, 2007 is dependent on varying factors: regional hotel performance is much more dependent on the state of the UK economy and, specifically, by local events. This makes it hard to forecast.

Nevertheless, assuming there are no shocks that might impact on London and the UK economy maintains its pace, the outlook for 2007 is positive.

efinition of the key terms Room occupancy: the ratio of total occupied rooms to total available rooms.

Average achieved room rate (AARR): rooms revenue divided by the total number of guest rooms occupied during the year.

Rooms yield: room occupancy multiplied by the average achieved room rate (also known as RevPar)

Robert Barnard is head of hotel consultancy services at PKF.


ROOMS DEPARTMENT 2006 2005 % change
UK regional hotels 628 628  
Average daily room rate per occupied room £72.87 £70.48 3.4
Average daily occupancy 80.8% 79.2% 1.9
Average daily rooms yield per available room £58.84 £55.87 5.3
Approximate number of rooms per day 82,900 83,850  
London hotels 202 202  
Average daily room rate per occupied room £124.70 £114.12 9.3
Average daily room occupancy 87.4% 78.9% 10.7
Average daily rooms yield per available room £108.95 £90.10 20.9
Approximate number of rooms per day 42,050 42,450  
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