Hotel workers enjoyed a boost from an increase in the minimum wage earlier this year, but now their employers are feeling the strain.
UK hotels have seen their profits squeezed by cost pressures including the rise in the minimum wage, despite room prices surging since the pandemic, according to research by consultancy firm RSM. Labour costs per available room increased to £16.62 in April, up from £15.32 in March.
However, operating profits as a percentage of overall turnover remained stagnant, indicating a direct impact of the minimum wage hike, RSM reported. In April, workers' groups were given a 9.8% increase in the national living wage (NLW) to £11.44, providing some relief for lower-paid workers following steep rises in the cost of living over the past two years.
This increase also brought the NLW to two-thirds of median earnings, lifting it above the Organisation for Economic Co-operation and Development's threshold for what is considered low pay. However, for hoteliers already under pressure from the effects of Brexit, Covid lockdowns and the cost-of-living crisis this has added further strain to an already struggling business model.
In response, operators have raised the price of hotel rooms since the pandemic, with average daily rates for occupied rooms reaching £139.51 in April, up from £110.24 before the lockdowns began in 2020. Occupancy levels remained steady year-on-year in the UK at 74.5% in April, compared to pre-pandemic levels of 77.6%.
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However, this hasn't translated into profits for hotel companies. Operating profits of UK hotels remained stagnant month-on-month at 31.4% of revenue, and are still trailing behind pre-pandemic levels, according to RSM. Chris Tate, head of hotels and accommodation at RSM UK, commented: "While UK hotels have been able to charge higher room rates when compared to pre-pandemic levels, they're seeing little of this making its way through to the bottom line."
"Ongoing cost pressures, the latest being the increase in national minimum wage, are chipping away at their operating profits." Hotels have also been impacted by an unusually wet Spring, adding even more strain on their peak summer trading periods.
April saw 111mm of rain across the UK, compared to the average of 72mm, making it the sixth wettest April of the last 189 years, according to the Met Office. Thomas Pugh, economist at RSM UK, added: "April was a tough month for consumer businesses with miserable weather keeping them out of shops and putting them off house viewings. It seems a similar picture for the hotel sector as well."
"However, there are good reasons to expect spending on hospitality services to grow from here. First, households' real disposable incomes are set to rise rapidly from April as inflation drops back to near 2% and tax cuts kick in, which will boost overall consumer spending."
"What's more, consumer confidence should continue to rise, ensuring that households spend most of their new income."
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