Our Blog

Connect with us on LinkedIn

Thursday, 17 December 2009

For hotels less down is the new up!

If anyone is looking for the green shoots more than anyone else in this recession it is hoteliers. It is now more than a year since the shock collapse of Lehman Brothers and its aftermath sent hotel occupancies plummeting around the world.

Some hotel sectors have done better than others. Five-star hotels have been challenged as company’s reshaped their corporate travel policies, forcing travelling executives to downgrade to four and even three-star properties. Budget chains have also benefited although perhaps not as much as they would have liked; the problem for them is that the three and four star properties above them have become cheaper and look more appealing than a no-frills room.

It was interesting to see the latest financials from the UK’s biggest hotel chain, Premier Inn, recently.

In its interim management statement t his week, parent company Whitbread announced a turnaround for the budget chain.

The company said it had seen some success in further widening distribution channels. The company had already started doing this – the chain signed a distribution deal with Conferma back in 2007 to distribute its rooms to TMCs. The company also said its business account is doing well – there are 12% more customers this year than last.

So what about the results themselves?

“At Premier Inn, the decline in like for like sales has halved in the last three months. Regional revpar at Premier Inn year to date is now showing a reduction of 7.9% against the hotel market drop of 11.1%. Our commercial action plan is delivering,” said chief executive Alan Parker.
A few months ago, a speaker at a travel conference made the observation that “flat is the new up”, meaning that anyone who could maintain their previous level of business was about as good as could be expected.

Several months on, it is now clear that “less down is the new up”.

Thursday, 10 December 2009

VAT the Travel Trade and Alistair Darling

Alistair Darling’s Pre-Budget Report (PBR) today contained few surprises apart, perhaps, from the reduction in bingo duty from 22 to 20% - that’s certainly going to stimulate the economy then.

Perhaps the biggest non-surprise was that Darling confirmed that VAT would revert to 17.5% from its current reduced rate of 15% on 1 January 2010.

Some will have breathed a sigh of relief that VAT was not increased to a much higher level to plug the gap in public finances (the UK’s net debt is forecast to be 78% of GDP by 2014-15 even with the return of VAT to fits former rate). Some analysts had suggested that VAT would rise to 20% or even 22.5%.

But while we are now clear on what the rate of VAT will be on 1 January, there is still some uncertainty over the treatment of VAT for billback services provided by hotel booking agencies and travel management companies.

New Year’s Day 2010 is also the date on which the UK implements changes to the Tour Operators’ Margin Scheme (TOMS). Although this sounds irrelevant to the business travel industry, it may have substantial implications.

The changes to TOMS, which the UK has been forced to implement as part of the European VAT Directive, say that from that date travel companies that buy in services and sell them on to businesses “for their own consumption”, eg business travel for employees, will no longer be able to claim back the VAT. In the case of hotel billback, this could mean the travel company will have to pass on the VAT charge to the business. Suddenly, businesses would be facing 17.5% higher costs (although thankfully not 20 or 22.5% after today’s PBR).

A brief from HM Revenue and Customs at the end of last week (http://www.hmrc.gov.uk/briefs/vat/brief7409.htm) appears to say there is no way out for the UK’s agencies. However, many are likely to challenge this interpretation, via their accountants and legal teams. A substantial and unexpected VAT bill is the last thing that agencies want at the moment.

Monday, 7 December 2009

Checking out in 2010

The hotel check-out queue: one of the biggest headaches of business travel. Invariably, you are racing off to a meeting or the airport and there are suddenly ten people in the queue in front of you and only one person behind the counter.

Part of the problem is check-out times. The hotel industry is remarkably standardised when it comes to check-out times. With few exceptions, the latest guests can check out is usually between 10am and noon unless they fancy paying a hefty premium for the privilege.

Some people have argued that the way around the problem is for hoteliers to throw off the shackles of standardised check-in and check-out times and embrace flexibility.

A number of hotels already do so. The Peninsula Beverly Hills in Los Angeles is perhaps the hotel with the highest profile that allows guests to stay for 24 hours from the moment they have checked in. Others do too: The Quality Inn Sabari in Chennai, India and The 13 Coins Tower Ratchada in Bangkok for example. Yet they are in a tiny minority.

There may be about to become more prevalent. China has just changed the guidance on check-in and check-out for its hotels aimed at overseas travellers. Until recently, if you stayed in your room after midday but left before 6pm you had to pay an additional half day rate. If you checked out after 6pm, you had to pay for another full day. New guidance issued earlier this year by the China Tourist Hotels Association now means that hotels can be flexible with their check-in and check-out times.

Hoteliers argue that such flexibility comes at a cost. At the moment, they can employ the bulk of their housekeeping teams and front desk staff for just the short window between 10 and 4pm, keeping their costs down. Instead, most just tell guests they can have a late check-out but they must pay a premium – ostensibly to cover the additional staff costs. It’s hard to see that changing any time soon.

But 24-hour check-out is one answer. Making check-out slicker is another. Services such as CSP (the Conferma Settlement Plan), check-out kiosks and electronic check-out from your in-room entertainment system can also make the queue shorter and move more quickly. For hotels not in a position to offer that, perhaps the answer is to offer departing guests in-queue entertainment.

Monday, 30 November 2009

The biggest story to hit the newspapers this year...

The biggest story to hit the newspapers this year has been, without a doubt, the revelations about MPs’ expenses.

In an effort to draw a line under the scandal, Sir Christopher Kelly and the Committee for Standards in Public Life published a report in early November that makes recommendations on what MPs should and should not be allowed to claim.

MPs' Expenses and Allowances: Supporting Parliament, safeguarding the taxpayer is a substantial document – 144 pages – so few people, other than journalists, will wade through it in its entirety.

It is interesting to see what the Kelly report has to say about hotel expenses.
Under the old system, MPs were allowed to claim up to £24,222 every year to cover their hotel bills when they were away from their principal residence. In 2007-08, Parliament sat for 165 days. That means MPs could spend £146.80 a night on a hotel. At rack rate, that would get you a night at the Ramada Ealing.

Interim measures introduced when the scandal broke imposed a cap on hotel bills of £1,250 per month, reducing the average per day to a shade over £90. If MPs were paying rack, this would probably stretch to a Travelodge in London.

So what will the Kelly report mean for MPs who stay in hotels?
The Kelly Report suggests that an independent regulator set an upper limit for overnight hotel costs, with a hint that £120 per night (plus VAT) might be a suitable upper threshold. That budget might just stretch to a Novotel.

But of course, MPs do not need to stay in a hotel every night of the parliamentary year and they will pay nowhere near rack rate. Taking both into consideration, MPs could probably stay in any hotel they choose in London. And with five-star hotels looking a little empty these days, MPs might be staying in some very nice places indeed.

Tuesday, 24 November 2009

The last thing you will probably be worrying about this New Year’s Eve...

The last thing you will probably be worrying about this New Year’s Eve is VAT. You are more likely to be thinking about where to grab your first kiss of 2010 or quickly thinking up a few resolutions that will inevitably be broken a few days later.

But if you are staying in a hotel that evening, your host may be worrying about just that. The temporary 2.5% reduction in VAT to 15% that was introduced in response to the wobbling economy will be reversed at midnight on 31 December 2009.

So what happens in the hotel bar around midnight? Do hotels have to reprogram your tills just as Big Ben’s bongs sound out to add 2.5% to the cost of a bottle of bubbles.

Luckily, the HM Revenue and Customs has said it will be flexible and let hotels (and other businesses such as bars) charge 15% until 6am. It will also turn a blind eye to any minor mistakes made in accounting for VAT over the New Year.

Whether HMRC will be as lenient with businesses who make mistakes as a result of the entry into force of new European VAT rules on the same date – when B2B supplies of services will begin to be taxed at the place where the customer is established and no longer at the place where the supplier is established – remains to be seen.