London hotels suffered a slow start to the year with profit decline in January one of the highest over the past three years, according to the latest HotStats survey by TRI Hospitality Consulting of around 625 full-service UK hotels.
Last month's profit drop in the capital of 9.2%, ranks alongside the same decline in profit in December 2011, which was due to heavy snow fall, and the June 2012 figure of -9.3% when the market was disrupted by the celebrations and extended bank holiday surrounding the Queen's Diamond Jubilee, as well pre-Olympic jitters.
The latest figure - which may be due to a slow return to business after the New Year holiday and poor weather conditions - is in stark contrast to the 7% growth in profit achieved in London during January 2012.
The capital experienced a decline in average room rate of 1.6% to £123.65 from £125.64 in January 2012 and a 1.7 percentage point drop in room occupancy, resulting in revenue per available room (revpar) in London declining by 4% to £83.34, approximately 28% below the rolling 12 month average of £115.56.
Demand dropped by 3.6% in the corporate and residential conference (-15.0%) sectors, while there was an increase in demand from the leisure sector of 9.4%.
However, it is believed that the boost in leisure business was encouraged by increased discounting as highlighted by the 4.5% drop in revpar.
As well as the decline in revenue, London hotels were hit by increased costs, most notably in overall payroll (+0.7 percentage points) as a proportion of total revenue, as well as maintenance (+10.5%) and utility costs (+5.4%) on a per room let basis.
David Bailey, deputy managing director at TRI Hospitality Consulting, said that there are current messages regarding the state of the UK economy are mixed. "On one hand, a recent Business Confidence Monitor by the ICEAW/Grant Thornton suggests that a ‘significant rise in confidence' could lead to a return to economic growth in Q1 2013. In contrast, the European Commission has conceded that the Eurozone economy will shrink by 0.3% in 2013, which will undoubtedly impact the primary feeder markets for London's business and leisure tourism trade."
Meanwhile, a 1% increase in revpar during January in provincial hotels was cancelled out by falling ancillary revenues and rising costs. Occupancy declined by a 0.5 percentage point, while average room rate increased by 2% to £65.82.
Volume in the corporate (+1.7%) and conference (+2.5%) sectors increased as a proportion of total demand in the provinces, with the corporate segment also recording a 0.5% increase in the achieved sector rate to £65.81.
"With Provincial hotel performance so closely dictated by UK economic output, the recent news that Moody's has downgraded the nation's credit rating due to sluggish growth over the next few years will not have been welcome news," added Bailey. "With the poor start to 2013, on the back of a fifth consecutive year of Provincial profit decline, it is critical that the economy begins to recover in 2013 if this general trend is to be reversed."