New research shows that cuts to public sector travel will significantly damage hopes of UK hoteliers of a return to profitability after a tough couple of years and that growth in headline RevPAR (revenue per available room) figures will be restricted.

PwC’s most recent Hotels Update says: “We estimate that [public sector funding cuts] will have the effect of reducing our original 2010 RevPAR forecast by 0.4% to 2.7% and our original 2011 RevPAR forecast by 0.8% to 3.9%. This is compared to the estimate that we made in our March forecast of a 0.6% reduction due to public spending cuts in both years. This is actually harsher than originally thought, as for 2010, the effect is concentrated largely into the second half of the year.”

The figures are based on a projected 15% cut in overall government expenditure over a four-year period and on the assumption that UK hotels depend on the public sector for 20% of their business. PwC says that its own research shows that hotels get 8% of their business direct from government but suspects this is an underestimate and that when universities and health services are added, the dependency could be 20%.

PwC comments: “While it is clear that hotel income will suffer, it is not clear whether rates or occupancy will be most affected. Will there be sweeping bans on travel or will government departments seek to keep travelling but bargain for reduced rates? Hoteliers will be pondering this question as they consider how best to respond to the coalition’s plans for ‘Austerity Britain’.”

Hotel spend by government departments

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