Hotels go bust as Airbnb thrives
7 Jan 2020
Hotel insolvencies have hit a five-year high as 144 shut up shop in 2018, this is up from 90 closures the previous year
7 Jan 2020
The hotel industry is taking a huge hit as a result of surge in Airbnb bookings, despite growth in holidaying in the UK, according to research by UHY Hacker Young.
UHY Hacker Young says the rise in insolvencies is driven in part by a slowing UK economy, which has caused businesses to cut back on conferences and ‘away days.’ Corporate events are a key source of revenue for hotels – as they provide income from venue hire, room bookings and food and drink.
The number of closures has nearly doubled in the last year from 90 to 144, caused by rising costs, a drop in sterling and Airbnb competition.
Competition has also pushed down room prices, as there has been an increase in the number of hotel rooms in the UK. Last year 15,500 rooms were added to the hotel market with a further 19,300 forecast for 2019, with budget hotels taking the hardest hit according to a Knight Frank report on UK Hotel Development Opportunities 2019.
The biggest hotel company in the UK is Premier Inn, owned by Whitbread, with over 75,000 hotel rooms across the UK in 2018. This is nearly twice the size closest competitor, Travelodge with nearly 42,000 rooms, while four/five-star chain Marriot has 8,500, according to statistics from Finder.
The rise in 144 closures has been met with a steady rise in room prices, as the average price of hotel rooms in London has increased £30 over a 10-year period, rising from £114 in 2010 to £153 this year.
Outside of London, hotel room prices have risen only £14 in the last 10 years from an average £59 to £73, according to statistics from Finder.
Peter Kubik, partner at UHY Hacker Young, said: ‘The hospitality sector is facing a period of considerable upheaval. Those hotels that are unable to fund change face being left behind.’
Hotels are also under pressure to list on sites such as Booking.com, to reach as many potential customers as possible. However, these sites often charge large referral fees reducing hotels profit margins considerably.
Kubik added: ‘Airbnb is increasing its market share and not just among millennials. Hotels – many of which are lagging behind in their use of technology – are going to have to quickly bring themselves up to speed.’
Having originally been seen as an alternative to the budget hotel market Airbnb is also trying to increase sales in the premium segment.
The growth of Airbnb has changed the market outlook as consumers now expect home comforts at a low price.
Profit margins are also squeezed by increases in the minimum wage, import costs and business rates.
The National Living Wage has increased four times in just over three years, most recently by 5% in April this year when it is set to reach £8.21.
The weakness in Sterling has also driven up the cost of importing food and drink, which, with so much competition in the sector, is hard to pass on to customers.