Tourism gold? Olympics set to lose Britain billions

Organisers accused of scaring off visitors by creating damaging spike in hotel rates

Unwanted hotel rooms needlessly reserved for dignitaries by Olympic organisers will be a key factor in a tourism slump set to cost Britain billions this summer, top travel industry figures have warned.

The organising committee for the London 2012 Games, Locog, revealed yesterday that it had over-estimated by a quarter the number of rooms needed by officials, media and sponsors. It has now handed back 120,000 of the total 600,000 nights booked for the sporting event.

The large-scale reservation of rooms in early preparation for the Games has caused increased prices across the capital and has put many regular tourists off visiting this summer.

Tour operators warned last night that a sudden flood of vacant rooms would be too late to boost visitor numbers. Analysis for The Independent suggests up to one million beds will now go unsold over the Olympic period, hitting hoteliers and others working in the tourism industry. One trade association estimated income could slump by up to £3.5bn during July and August.

Premium Tours, a leading sightseeing operator based in London, expects business to decline by one-third this year. Neil Wootton, the managing director, said: "Prices have been so high that tourists are moving elsewhere. Overseas wholesalers who traditionally push London have switched to other cities this year. If the Parisian and Italian hoteliers do their job then the tours may never return to London."

By the end of January his company has normally sold one-fifth of summer capacity; it is currently 60 per cent below that target.

Hotel rates have broadly tripled in London during the Olympics. Six months ago The Independent made a booking for the DoubleTree by Hilton in Holborn, central London, for 1 August 2012. The rate, £450, is four times the price of taking a room last night, and 150 per cent higher than for 1 August last year. Yet evidence from previous Olympiads, together with analysis by The Independent of the likely propensity of ticket-holders to book hotels in London, suggest hoteliers' expectations are wildly optimistic, exacerbated by Locog's similar over-optimism.

The likelihood is that London's hotels will be less than 80 per cent full – representing one million empty beds over the duration of the Games, or 55,000 beds every night. In July and August of a normal year, occupancy is 90 per cent or more.

The European Tour Operators Association believes that the summer tourism slump could cost up to £3.5bn. The executive director, Tom Jenkins, said: "During the Olympic period itself, there is currently almost no demand from regular tourists."

VisitBritain, the British tourist authority, however, emphatically rejects predictions of decline. The organisation expects inbound tourism to be the same as last year, with 30.7 million overseas visitors. The chief executive, Sandie Dawe, welcomed the release of rooms by Locog and said: "We have a fantastic range of deals in place."