Forte's strength tested as hotel trade falls on hard times: Hoteliers are failing due to high prices and the recession but the French are more successful. Frank Barrett reports

ON THURSDAY the hotel industry was served another unwelcome helping of bad news when Rocco Forte, executive chairman of the Forte group, announced the first cut in the company's dividend for more than 20 years.

Forte's troubles followed hard on the heels of the Queens Moat House group, whose shares were suspended on 31 March, and the Savoy Group, which earlier this month reported a pre-tax loss of pounds 1.43m for 1992.

Times are tough in the hotel trade. Forte's nearest rival in size is not Ladbroke or Granada but the Grim Reaper. The second biggest collective owner of hotels in the UK is the receiver. It is estimated there are more than 500 British hotels in receivership - with about 20 joining the list every month. The reason for the troubles is the recession. Hotels have been doubly hit by the economic difficulties.

Years of continuing growth in the Eighties encouraged them to borrow heavily to finance expansion. When boom turned to bust in the Nineties, hotel operators became saddled with ruinous debts that proved increasingly difficult to repay. The economic downturn has hit business and leisure travel, reducing occupancy of hotels and forcing hoteliers to reduce prices to try and fill rooms. The total number of room nights sold in the UK slumped from a peak of 28.1 million in 1989 to an expected figure this year of around 25 million; the average rate for hotel rooms dropped from a high of pounds 54 per night in 1990 to around pounds 46 per night.

However, things are just as tough across the Channel. France may be in an economic slump, but it would be hard to guess from the frenzied state of its hotel industry. During 1992, a total of 10,305 hotel rooms were built in France, compared with just over 2,000 in the UK.

Last year, more hotel rooms were added in France than all the other continental countries and the UK combined. This extraordinary growth is happening predominantly at the bottom end of the market. Furious competition between established budget chains such as Formule 1, Ibis, Campanile and Premiere Classe - and newcomers like Mister Bed and Villages-Hotel - has triggered a price war. Hoardings promise rooms from pounds 13 per night, with offers of children's free accommodation and free breakfasts. Richard Binns, author of a series of guidebooks to France, says that it is this 'healthy competition' which continues to make French hotels a better buy. 'Prices of hotel rooms in Britain are still outrageous,' he said.

France's advantage lies in the family-operated hotel. 'A young couple will take a place over from the parents without ever knowing what a mortgage is - they start without any financial burden.'

In Britain, many small family-run guest houses were forced out of business in the Eighties by new laws governing fire regulations and health and safety requirements.

Thomas Conboy, general manager of the Priory Hotel in Bath, which offers double rooms from pounds 150 per night, denied that British hotels were overcharging. 'In actual terms hotel rooms in our sector of the market are now pounds 15 to pounds 20 cheaper than they were four years ago.' The 21-room Priory is part of the up-market Select chain, which is in administrative receivership but continues to trade.

Mr Conboy said that French hotels had many advantages: 'They get all sorts of benefits that the French government provides to the tourist trade in many areas, including tax and VAT. Our overheads are certainly higher: a hotel like mine has to earn pounds 60,000 per month simply to break even.'

The support offered by the French government to tourism stands in marked contrast to the ambivalent attitude of the British government, which has reduced its support for the English Tourist Board and cut grants to hoteliers.

There is discontent among UK hoteliers at the poor performance of tourist information centres which tend to be shut when most needed.

French budget chains which hoped to weave the same business magic in Britain that they have worked in France, quickly discovered that British hotel companies have more problems to contend with.

Formule 1 appears to have abandoned the idea of developing its business in the UK after its first three hotels failed to make an impact. 'They are trading below expectations,' Patrick Savourey, managing director of Formule 1 UK, said.

In Britain, at pounds 19 per room per night, with breakfast costing pounds 2.50, even without en suite toilet or bathroom, Formule 1 offers excellent value. In France, even at just over 8 francs to the pound, Formule 1 rooms cost pounds 4 per night less. Difficulties in getting planning permission and the cost of land - which Mr Savourey claims is up to five times more expensive in Britain than France - has led to Formule 1 putting future UK projects on hold. In France, however, this year Formule 1 will be adding a further 35 hotels.

Other operators believe there is still room for growth in the budget market. Forte Travelodge, which has built up a chain of 94 budget hotels since it was set up in 1985, offers rooms that sleep up to three adults, a child under 12 and a baby in a cot for pounds 31.95 per night.

John Hampson, executive director of Forte Travelodge, said that the number of budget hotel rooms in the UK will probably double in five years. 'It will not grow as fast as it has in France, the market is still in its infancy here - but there is still huge room for growth.'

Travel, page 41

(Photographs omitted)