Sunnyahead? days

Cornish tourism looks set to return to pre-pandemic levels, says Tom Roach, partner and head of leisure and tourism at PKF Francis Clark.

The rollercoaster of businesses ups and downs over the last three years appears to be steadying and comparisons of occupancies and profit levels can now be made with prepandemic levels.

As with the economy in general, the hospitality sector is in a sustained period of cost pressures, but according to PKF Francis Clark this is following an unprecedented period of growth.

The question is: Is this enough to withstand the on-going cost inflation?

Our Cornwall Hotel Occupancy Tracker has been monitoring bookings at a crosssection of hotels in the county for the past 20 years.

This database of bed nights and occupancy levels, when aggregated with market information on profitability and tariffs, provides us with a useful barometer for how the hotel industry is performing and the outlook for 2023.

The graph below compares occupancy rates over the past two years with those in the last pre-pandemic year of 2019, which was on par with 2018 and slightly ahead of earlier years.

Analysis Of Statistics

Our figures indicate that following a period of truncated openings and unscheduled closure periods, businesses saw an increase in occupancy levels during 2021 and 2022. There were very low levels of occupancy during lockdowns with most hotels staying closed, but a few making use of rooms for key workers etc.

Bookings in April to September last year were ahead of pre-pandemic levels, although this was not sustained for the final part of the year as booking levels appeared to suffer from press speculation that the UK economy was about to enter if not a deep recession, then a very long one. The repeated attempts by the media to talk down the economy clearly do not help to bolster public sentiment!

In addition, the sector saw significant improvements in tariffs. In many cases, the VAT reduction was coupled with strong demand and businesses have been able to maintain improved tariffs and less discounting since the pandemic. However, the profitability of hotels needs to withstand:

• Increased energy costs. With energy increases lagging the market due to fixed deals, the costs of energy in a typical hotel - whilst being offset by increases in turnover to some extent - are looking to increase to around 7% of turnover from a typical historical level of around 4%.

• Increased financing costs affecting any hotel with debt on a variable loan.

• Continued shortages in the labour market coupled with increases in the living wage from April. Wages in 2022 were on average 39% as a percentage of turnover.

Looking back on 2022, Easter was the first time since the pandemic that many businesses had been able to open for this important holiday period. Over the whole year, occupancy levels saw an increase of 3% compared to 2019, which by historical standards is a good result.

However, these were not at the same levels as 2021 and the second half of the summer in 2020, where there was an increase of 15% over the core season compared to

2019. The removal of travel restrictions in March 2022 made inbound and outbound travel easier, with the figures demonstrating an increase in tourism in the south west following a period of lockdowns. Towards the end of 2022, occupancy levels dipped in December as businesses and consumers contended with increases in energy prices, interest rates and inflation.

Staffing became a common discussion point in the industry, with recruitment remaining a key issue and focus. In addition, significant government support provided to hotels during the pandemic was either tapered out or completely removed.

WHAT IS THE OUTLOOK FOR 2023?

As we look ahead, booking levels for 2023 appear to be consistent with levels in 2019. Our database is currently showing energy costs at around 3.9% of turnover on average, which is lower than historically and the