UK-based accountancy Moore Stephens has reported that the headwinds created by Brexit could result in 1,800 UK hotel companies having at least a 30% chance of going insolvent within the next three years.
It stated while a weaker pound may encourage more tourists to visit the UK and tempt more Britons to take ‘staycations,’ visitors are likely to focus on key tourist hotspots, leaving hotels in other less popular locations struggling.
At the same time, food and beverage costs are set to increase as unfavorable exchange rates push up import prices, adding to already-rising overheads tightening profit margins.
The introduction of the living wage could lead to further financial strain for small hotels outside cities. Many hotel workers are over the age of 25, and so the living wage affects almost half of the hospitality workforce, said the report citing data from Resolution Foundation.
Add higher commissions from OTAs and higher marketing costs, as well as new competition from the likes of Airbnb and budget hotel chains, and margins for smaller hotel companies are squeezed even further, Moore Stephens said.
At the same time, uncertainty and a lack of confidence in the economy since the referendum vote has slowed business travel.
“Much of the hotel business in the UK comes from overseas tourists and those traveling for leisure. In order to combat any loss from the business sector, hotels should look to attract more custom from tourism, particularly those higher spending foreign tourists, such as Americans and Europeans,” said Jeremy Willmont, head of Restructuring & Insolvency at Moore Stephens.
Joanne Allen, head of Hotels & Leisure at Moore Stephens, added, “Staff shortages have the potential to get worse if immigration tightens after the implementation of Article 50.
“In addition to this, small hotels have tighter profit margins, and are often more reliant on seasonal trade. This can make it difficult to budget for the whole year, while also putting cash aside for renovations and updates.”