War threat to hotels profit
Tuesday 13 April 1999
American demand accounts for 17 per cent of the London hotel market (and 45 per cent of the deluxe end), the conflict in the Balkans is causing mounting anxiety among all the major hotel groups.
A leisure sector analyst with a leading investment bank said: "We are talking to all the groups about this. Last week we asked Granada if they had felt any effects in bookings from the US in their Heritage chain. So far they said they hadn't noticed anything but if there is any significant shortfall at all from the US it will be felt hard.
"The last three months of 1998 things in London were pretty bad. Since then there has been a slight improvement but any impact from US business travellers and tourists to London will affect the sector."
Pannell Kerr Forster senior consultant Richard Jeffrey agrees the sector is in no shape to withstand the bottom falling out of the American market.
"It could have a big effect. Americans, notoriously sensitive to this kind of thing, tend not to travel if there is trouble in Europe."
The sector reached its lowest point in five years in the autumn of 1998. Since then there has been some recovery led by Granada whose shares shot up 68 per cent since November to 1393p yesterday.
There was also good news from Savoy Group, which includes The Savoy, The Berkeley and Claridges. The company showed a strong improvement, with a 39 per cent jump excluding exceptionals in the gross trading profits since its delisting and takeover by US venture capitalists Blackstone and Colony Capital last year.
Savoy Group MD Ramon Pajares denied any fallout from the War had yet been felt , but he admitted confidence was being affected. "So far we have not felt any negative impact and we won't see any unless the conflict escalates and the Russians get involved," he said. "If it is contained, I don't expect our business to suffer. Some people in business who do not understand our industry as well as one would hope become too quickly disenchanted."
But despite improved performance Pannell Kerr Forster report occupancy rates in London are now dipping below 80 per cent for the first time since the early Nineties and room-rate increases - well in excess of inflation for two years - have fallen in line with inflation.
To make matters worse the context is a predicted considerable drop in tourism to the UK. "The overall number of visitors to the UK fell last year, and led to a corresponding fall in the number of bed nights in hotels," a spokesman for the British Incoming Tour Operators Association said. "The anecdotal evidence is we will see further drops this year."
Nonetheless, in public at least, the major operators remain upbeat. "Nearly 20 per cent of our market is North American but it's business as usual," says a Thistle spokes-person. "To date we haven't seen any specific impact from the Balkans so I don't think we're too concerned."
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