South East: Hotels at risk as inbound travel starts to 'fizzle out'

More than one in three (35.1%) hotel businesses in the South East have a greater than normal risk of insolvency, according to new research by restructuring and insolvency trade body R3.

This percentage, compiled using Bureau Van Dijk’s Fame database, has risen sharply since the start of the year: in January 2018, the proportion of hotel companies in the overall negative band was just 27.8%, meaning that the picture has worsened by more than 26% over this period.

The proportion of companies at greater than normal risk equates to over 460 hotel businesses out of 1,323 active companies in the region and is notably higher than the figure for the UK overall (32.5%).

Mike Pavitt, chairman of R3's Southern Committee and partner and head of the corporate restructuring and insolvency group at solicitors Paris Smith LLP, said: “Relatively lacklustre UK economic growth and the long squeeze on real incomes, which is only just showing signs of easing, have put pressure on hotel companies reliant on tourism and business travel. Inbound travel trends aren’t particularly solid and it’s suggested that last year’s boost to inbound holidays from the weak pound may have started to ‘fizzle out’.

“Staycation prospects for the summer usually provide some demand but squeezed consumer spending could well have mitigated the benefits this year. That said, Whitbread, the owners of Premier Inn, announced in May that due to the overall rise in staycations it has seen an increase in demand in coastal locations and was laying plans to bring 1,000 new Premier Inn bedrooms to seaside locations over the next year.

“London continues to lead the way in terms of the number of new hotel rooms being opened, with a marked supply spike of more than 9,000 new room openings in 2018– more than the 8,000 rooms that opened in 2012, London's Olympic year. The risk, of course, is that greater capacity could result in lower occupancy rates.”

Business owners and directors across all sectors are advised by R3 to continue to monitor their finances carefully, plan for all foreseeable eventualities (with a particular eye on the likely effect of Brexit in the spring) and keep careful records of their decision-making processes including the evidence upon which those decisions are based. It is vital to remain alert to signs of trouble, which requires high quality data to be available to management, and to be ready to adapt to the changing economic landscape.

If in doubt, receiving and acting upon professional advice from qualified and regulated restructuring specialists as early as possible will help to maximise the options for a business, increasing its chances of future survival and prosperity, whilst also mitigating the potential downsides for directors in the event the business should nevertheless fail.