Hotel casualties won't be as high as in the 90s, say experts

The hotel sector is unlikely to experience as many casualties as it did in the 1990s recession despite the collapse into administration of Folio Hotels, according to analysts.

Folio, which leases its hotels, called in the administrators last week because of a sharp decline in trading. The Swindon-based company, which has 36 hotels throughout the UK and a turnover of about £70m, blamed high rents and an expensive refurbishment programme for its cash flow problems.

Folio, set up in 2004 by the former managing director of Corus Hotels and Martyn Levitt, the former finance director of Firmdale Hotels, had been in discussions with its landlords over a rent holiday to allow it to continue trading. However, a decision by the owner of nine hotels to pull out of negotiations is said to have prompted the move to appoint MCR.

Legacy Hotels and Resorts has expressed an interest in taking over a number of properties from Folio, with chief executive Andy Townsend saying "several of the hotels have great potential".

Hotel industry consultant Melvin Gold said Folio's business model of leaseholds made it "particularly vulnerable". "Due to the nature of the business, Folio found itself in a difficult position very early on," he said.

But while Gold warned that hotels will face a "significant downturn" in the coming months, he said banks will be reluctant to place operators into administration and receivership, as it will be difficult to realise the value of the assets.

Stephen Broome, assistant director of hospitality and leisure at consultancy PricewaterhouseCoopers, agreed and added that, while difficult times were ahead, the market is more robust than it was during the last recession.

"While it remains to be seen what will happen to the sector I don't see there being as many casualties as there were in the recession in the early 1990s," he said.

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By Kerstin Kühn

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