Confidence has seen a guarded upturn in the hotel and restaurant sector, according to KPMG’s European Business Outlook survey.
However, most of the survey indicators remained at historically weak levels and prices continue to be squeezed and insolvencies are set to rise in the independent sector.
The survey of 200 companies in the hotel and restaurant sector across Europe found that the 12-month outlook for the volume of business activity within the sector has turned positive - the net balance improved to +11.4, from -27.2 in Oct 08, higher than the levels of confidence in Apr 08 of +9.7.
In addition, confidence in business volumes, revenues and incoming new business all improved in April 09 compared to those posted six months earlier.
Of those surveyed, 33.5% expected growth in their volumes of business activity over the next 12 months, compared to 22.1 percent forecasting declines.
However, the net balance for business revenues (+5.3) was lower than that for business volumes (+11.4), suggesting that recent promotional activity and discounting in the sector are seen to be both working and set to continue. Also, the net balance for output prices was down from +20.3 in Oct 08 to +2.3, far lower than the Apr 08 figure of +44.0, illustrating the continued squeeze on pricing for hotels and restaurants.
Despite the cautious improvement in the European sector’s 12-month outlook, KPMG predicts that some parts of the sector will suffer more than others.
Richard Hathaway, head of travel leisure and tourism, KPMG said: “What is, on the face of it, an unexpected upturn in confidence probably reflects the fact that when the April 08 survey was undertaken, confidence levels were already quite low and that by October 08 confidence was almost non-existent.
“The sector saw trading worsen into December and January 09 but more recently there is feeling that the rate of decline is slowing and the bottom may be in sight, at least in terms of volume. However, this does still seem to paint a rather optimistic picture given that pricing pressure remains a major issue.
“In the hotel sector, opcos and propcos are feeling the impact of the downturn to differing degrees, creating tension between owners and managers. With propcos seeing their net profits and cash flows hit the hardest and many holding high levels of recently provided leverage, they in particular will continue to struggle for some time.
Jane Moriarty, hotel restructuring partner at KPMG, said: “In the UK we are seeing many hotel owners particularly those in the independent mid-tier sector, treading water on low interest rates. But should interest rates rise, it could well be the straw that breaks the camel's back for many.
“We have already seen the start of a wave of insolvencies in the sector, having been appointed as administrators to three boutique hotels this month. Unfortunately high fixed costs and a drop off in demand are an irreconcilable conflict and we expect to see many more businesses fall foul of this problem.”
