The dearth of business travellers, who have had their corporate travel budgets cut amid economic woes, has been a major headache for the hotel industry for the past four years.
De Vere, a luxury hotels, leisure clubs and drinks business, said yesterday that corporate and conference bookings had picked up, as it announced flat six-month profits. Some 60 per cent of its business is from the corporate sector, so this is a great relief, but the bad news is with the leisure traveller. They are now the ones staying at home, and De Vere's experience mirrors that being seen on the high street, as well as for other pub, restaurant and gym businesses. See Whitbread's last results statement as a case in point. The British consumer is suffering.
Shareholders have reason to be pleased with De Vere thus far, however. It returned £183m from the sale of the Belfry hotel and retained the contract to manage the hotel. Management contracts are the business model for new De Vere hotels, as this does not require capital up front to pay for building or buying expensive properties.
The group is also growing its Village-branded hotel developments, which include a hotel, pub, restaurant, coffee bar, banqueting facilities and giant health club. But with this type of leisure spend falling, De Vere's expansion could feel the brunt of the slowdown. There are also concerns over its stand-alone fitness club chain Greens. It is difficult not to imagine the consumer slowdown biting here too.
Its drinks business, G&J Greenall, also reported tighter margins yesterday. Corporate travel may be strengthening, but with these other factors, the management's target for 10 per cent return on capital by 2007 looks a pretty tall order. Even if it were to achieve it, other areas of the hotel sector produce far higher returns. Budget hotel operators such as Whitbread report return on capital of above 15 per cent. So, while return on capital is creeping up, it is still pretty paltry.
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