Confidence rises among European hotels and restaurants

The business confidence of the European hotels and restaurants market has unexpectedly risen, according to a survey of 200 companies in the sector.

More than a third of those in the European hotels and restaurants sector expected growth in their volumes of business activity over the next 12 months, compared to 22.1% forecasting declines, the KPMG European Business Outlook survey showed.

However, the report warned that there could be a surge of insolvencies in the independent sector.

The study used net balances which vary between -100 and +100 to indicate the degree of future optimism or pessimism on future business conditions.

It found the 12-month outlook for the volume of business activity within the sector had turned positive – the net balance improved to +11.4, from -27.2 in October 2008, higher than the levels of confidence in April 2008 of +9.7.

However, the net balance for business revenues (+5.3) was lower than that for business volumes (+11.4) suggesting that recent promotional activity and discounting in the sector are seen to be both working and set to continue, the report said.

Richard Hathaway, head of travel leisure and tourism at KPMG, said the unexpected upturn in confidence probably reflected the fact that when the April 2008 survey was undertaken confidence levels were quite low and by October 2008 they were “non existent”.

He said the sector saw trading worsen into December and January 2009 but more recently “there is feeling that the rate of decline is slowing and the bottom may be in sight, at least in terms of volume”.

But Jane Moriarty, hotel restructuring partner at KPMG, warned many hotel owners particularly in the independent mid-tier sector were “treading water” on low interest rates.

“Should interest rates rise, it could well be the straw that breaks the camels back for many,” she said. “We have already seen the start of a wave of insolvencies in the sector, having been appointed as administrators to three boutique hotels this month. Unfortunately high fixed costs and a drop off in demand are an irreconcilable conflict and we expect to see many more businesses fall foul of this problem.”

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By Helen Gilbert

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