UP to 10 per cent of Scotland’s hotels may be forced to shut permanently by 2023 as the industry grapples with mounting debts, costly overheads, and continuing restrictions on domestic and international travel, it has been warned.
Hotels around the country have been reopening following months of lockdown as coronavirus restrictions have eased in recent weeks. However, many have recommenced trading carrying additional debts built up during fallow months, with costs involved in reopening adding to the overheads operators were continuing to meet throughout long periods of closure.
Restrictions on international and UK business travel continues to limit demand for accommodation, while tourism and hospitality operators in Glasgow and Moray were dealt a further blow last week when they were ordered by ministers to remain in level three restrictions, following surges in Covid case numbers. There are now fears tighter restrictions could be on the way in other areas.
The challenges facing the hotel sector were underlined in a survey by the Scottish Tourism Alliance, which poured water on hopes Scotland is set to see a staycation boom this summer.
The survey, revealed exclusively by The Herald last week, found that occupancy was sitting at below 20 per cent for nearly half of accommodation providers for May, June and July.
And it signalled the picture was even more stark for Scotland’s cities, where 94% of hotels reported occupancy levels of below 50% in May. The proportion forecasting occupancy of under 50% rises to 98% in June, before easing to 87% in July.
Staff shortages, notably for chefs, were also cited because of Brexit.
Meantime, the latest survey from Market Recovery Monitor has found that nearly 10% of UK restaurants have closed since the pandemic.
With hotels typically carrying higher overheads than restaurants, and demand stifled by limited travel by business people and international tourists, Derek Forsyth, head of restructuring at Azets, said a similar closure rate could be on the cards for hotels in Scotland in the coming months.
A report published by AMPM in 2014 found there were 1,870 hotels in Scotland, but estimates suggest the total could now be nearer 2,000 following a significant expansion of stock in the years leading up to the onset of the pandemic.
Mr Forsyth, whose firm incorporates the former Campbell Dallas and Scott Moncrieff accountancy businesses, said hotel owners keep having to pay overheads while facing “complete uncertainty as to when the money will start coming in again.”
“Two days ago you couldn’t go to Portugal, and now it seems you can,” he told The Herald. “It is just changing by the day.”
Mr Forsyth said his firm has been approached by business owners with hotels in financial distress, though some are currently able to stay afloat because of ongoing support such as the furlough scheme.
He said: “What is coming across loud and clear is occupancy levels are very, very low just now, compared to what they ordinarily would be at this time of year. The city centre hotels, particularly, rely on business travel [but] nobody is travelling, nobody is coming up from London or coming in from abroad for business meetings. There is no conference income, no black-tie dinners or functions you would normally have at this time of the year. There is no sporting events, no concerts.”
Mr Forsyth expressed concern over the level of debt being carried by the industry. He noted that many operators will have taken out bounce back or coronavirus business interruption loans to help them stay afloat during the last year, in addition to loans they may already have had entering the pandemic. However, much of that funding will be running out.
Compounding the cash squeeze, operators will have had to invest in stock and staffing up ahead of reopening. Mr Forsyth explained: “Hotels need a budget for starting up again. Funding what will probably be a loss-making period until things get back to normal again – if they ever get back to normal. The difficulty with hotels is that the day they open they have to be as good as the day they closed. Nobody will tolerate the wifi not working or there not being enough hot water, just because the hotel has been closed for six months.”
He added: “The one thing about Covid is that it has been habit forming, and it has been going on for long enough now that people will just not have the same degree of business travel that they had before. Everyone is very used to doing Teams calls and Zoom calls and there will be huge savings for financial directors on that.”
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