September 26, 2022

Villa Ming

Travel & Wisata

The impact on hospitality businesses

14 min read

Hospitality businesses across Europe share insights on how the energy crisis is affecting daily operations and the future outlook over the next 12 months.

• How is the rising cost of energy impacting the operations of your business?

James Fry, founder, Beyond Apartments:

“We fixed our prices in March 2022 for a year, so although they were higher than before we have not yet been exposed to the dramatic hikes other operators have seen over the last six months. We were able to fix these prices for 12 months. In addition we take a number of steps to reduce energy usage.

“We have the latest modern boilers that are amongst the most efficient in the market, we have high levels of insulation that keeps the hot air in or out – including double glazed acoustic windows. We have 100 per cent LED lights. We have spray taps and eco showers that reduce the amount of water used. All equipment in the kitchen is A++ which dramatically reduces their energy by up to 50 per cent. We have limited communal spaces that require constant heating or cooling. We have solar on our roof to provide some of our electricity and we use 100 per cent renewable energy from the highest rated provider in the UK. Green Energy UK.”

Oliver Bateman, general manager, Royal Garden Hotel:

“The rise in utilities is being felt everywhere and the hospitality sector is no different. We are looking at the cost of utilities tripling with possible further increases in the next 12 months. This is, in part, due to the release of over 170 newly refurbished rooms and a new restaurant on the way! The real challenge however, is ensuring the guests do not feel any restrictions and that they still experience the tailored luxury service they expect.”

Merilee Karr, chair, STAA, and CEO, UnderTheDoormat Group:

“Traditionally, energy and utility bills represent a small percentage of costs for short term rental operators because it is the property owner or host rather than operators who controls these contracts and pay the bills.

“Both for the owner/host and for operators, we are now seeing the prices guests pay rise in the short-term rental sector – one operator saw prices this summer at close to 50 per cent higher than in 2019 (albeit on an ever changing portfolio of homes). This inflationary movement is currently able to cover or part-cover the huge hike in energy prices. Given the properties are often rented out for short periods and serviced with fewer resources than a typical hotel, energy and utility costs now account for up to 50 per cent of the overall costs of servicing a typical short term rental stay.”

Lionel Benjamin and Vivian Watts, co-founders, AGO Hotels:

“For a budget hotel like those AGO operates, energy costs are usually between eight to 12 per cent of our total operating costs. We have now seen this increase to a staggering 30 per cent with energy bills rising by 250 per cent in some cases where supply contract renewals are required.” 

Trine Oestergaard Stafford, managing director, House of Fisher:

“Electricity alone will be an increase of over 400 per cent from our initial estimates. We are currently not able to renew contracts on a large part of our apartments, which makes it difficult to budget for the future. However we expect some of this to be cheaper than locking ourselves into long high rated contracts.

James Kent, managing director, Safe2 Ltd: 

“We are hearing from landlords and tenants alike each with concerns over the rising energy costs. Landlords, particularly with short term rentals, who have included bills within the tenancy agreement are now terrified of being at a loss and tenants are equally worried if they don’t help contribute then the landlord will either raise the rent or evict them at the end of the tenancy.”

Raphaël Oren, country manager France, GuestReady:

“Rising energy prices isn’t really a topic – the costs of cleaning providers are rising but it’s in line with the rampant inflation that is being observed in the country.”

Rui Silva, country manager Portugal, GuestReady:

“Portugal is the market where GuestReady has the largest internal cleaning team. The rising cost of energy has increased operational costs by 30 per cent and we anticipate that this figure could still increase by the end of the year. Should these rising costs last, they may force less competitive offers to clients, and we might have to increase the minimum number of nights per stay to lower the operational expenses.”

Mateusz Sabak, co-founder, RentPlanet:

“Electricity prices have increased by about 25 per cent compared to last year, and an increase of even 115 per cent is forecast for the next year. This has raised the prices of subcontracting companies such as laundries. The costs of their services have in some cases increased by over 100 per cent – let’s not forget that they also have to cope with increased gas and water prices. 

“The growing costs of subcontractors are finally transferred to the recipients. The increased prices of services force us to increase the prices of accommodation, which, however, does not translate into higher income.”

John Philipson, COO, Cheval Collection:

“We are in a fortunate position in that we negotiated a three-year energy deal before the current round of price inflation really began to bite. This deal is due to expire in 2025. This still reflected a 40 per cent increase on prior year and is impacting our business as it is one of the largest cost to our business beyond payroll.

“With such a volatile market we are expecting a tougher negotiation period when we come to renew our contract.”

• What practical steps can hospitality businesses take to reduce energy consumption?

Andreas Scriven, head of hospitality and leisure, Deloitte:

“A good place to start is look at what these businesses were doing during COVID. In that period, operators had an opportunity to look at their expenditure and try and reduce costs. 

“Hoteliers can look at tactical operational changes, for example if a property is not trading at full occupancy then close off floors, turn off the lights and heating. But this can lead to risky territory; these changes might impact the guest experience and this is best illustrated in the luxury end of the business, but it holds true throughout the sector. There is a risk associated with cutting services to cut costs. 

“If a hotelier hasn’t already invested and implemented the technology to control and track energy consumption, it’s probably too late for the challenge they are faced with now. The race towards net zero means it’s still hugely important for the medium and long term, but for this immediate challenge it’s not going to work. So I would suggest looking at operational changes as well as encouraging mindful guest behaviour.”

Ufi Ibrahim, chief executive, Energy & Environment Alliance:

“Anecdotal evidence suggests that guests have a minimal impact on the volume of energy consumption in hotels. Some state that the impact of guests is as little as 20 per cent of total energy consumption. So, the greatest savings can be achieved in building related systems, such as HVACs which are a high energy guzzler. Smart solutions such as the use of ‘intelligent plants’ which are supercharged and purify the air through natural processes at an accelerated rate can significantly dent energy consumption by HVAC systems. Energy management systems, which monitor and analyse operations also help.

“It’s also worth taking advantage of tax and capital allowances (currently available) to invest in technologies that can cut energy consumption through automated systems. Two interesting examples immediately spring to mind: the first is a system which can detect overload energy supply from the national grid and can deflect excess voltage back onto the grid before energy even comes into your hotel building. We’ve seen examples of energy savings through these systems as high as 14 per cent. There are also ventilation systems which are intelligent and automated, playing an important role in cutting energy usage in kitchens. These are just a few examples and there are many more.”

James Brown, operations director, UnderTheDoormat:

“There are three tips that we encourage our property owners and operators to adopt. The first is to install smart meters inside properties to track the usage of gas and electricity, making sure appliances are regularly serviced and well maintained. Second, setting simple instructions for turning off lights and appliances when they’re not in use and asking guests to reduce shower times by a couple of minutes. Third, keeping the accommodation temperature at an optimum 18 to 21 degrees Celsius, as fluctuations in temperature will adversely affect energy usage.”

Dale Smith, director, Host & Stay:

“In the self-catering property sector, we are actively encouraging our property owners to consider installing smart heating controls into their properties so that they can actively manage their energy consumption between stays, as well as manage maximum temperatures inside the property too. Unfortunately, our property owners are unable to simply increase rates to try and offset some of the increase as the guests who are looking to travel and stay in our properties are also being impacted by the energy crisis, so prices are going to need to be managed to ensure bookings continue to flow in. It’s a fine balance.”

Lionel Benjamin and Vivian Watts, co-founders, AGO Hotels:

“AGO are conscientiously trying to mitigate the additional costs, through a number of initiatives. To improve purchasing power, working through a broker – we use Dr Cost – who bulk buy for numerous businesses and assists us in negotiations with energy companies. To reduce consumption, we are working with our operations teams to look at further implementation of infra red sensors, to ensure when there is zero movement lighting remains off. We have looked at boiler temperatures and whilst acutely aware of Legionella, we are reducing boiler temperature accordingly. We are evaluating whether it will be financially viable to keep some hotels open if we have a severe winter.

“It is important to identify the top 10 costs and look at creative ways of reducing these costs without reducing the efficiency of the business. Hoteliers should also try to boost morale amongst teams utilising creative and inexpensive ways to encourage and support team members. And finally, be vigilant for opportunities – even in a shrinking market, businesses can grow market share, increase efficiency, and add value to their customers.”

James Kent, managing director, Safe2 Ltd: 

“With holiday lets, we are seeing landlords being more proactive in becoming as efficient as possible rather than raising prices over the winter and installing items such as smart thermostats, motion sensor lighting and energy-saving appliances.

“Some tips to any landlord who is concerned about energy costs is to ensure the property is efficient as possible, complete and review an EPC, keep the boiler serviced and running well and consider offering incentives to tenants who help to save on the utilities.”

Will Parry, CEO and founder, ALTIDO:

“At ALTIDO we are already in discussion with property owners to talk through possible solutions. The first and most sensible step is to roll out smart thermostats and other IOT technology to ensure maximum energy efficiency within the properties. This will add a level of management to the electrical devices of the property and can warn of potential drastic changes in the room temperature, windows left open or lights left on. Along with purchasing smart devices and replacing some consumables with low-energy alternatives, owners could consider increasing insulation of their units. 

“Another crucial aspect will be communication with the guests: there must be clear guidance on responsible energy consumption which includes putting information on the website, sending automated messages with reminders and physical signs in the properties.”

• What’s your future outlook over the next 12 months?

James Fry, founder, Beyond Apartments:

“We are concerned that good operators who are just recovering from COVID will be pushed over the edge. However, we also believe that operators will finally wake up and klook at how they can reduce their energy usage. This is sadly driven by monetary pressures rather than environmental concerns but once the change has been enforced upon them they are much less likely to go back or at least know the steps they can take to reduce usage, find alternatives to benefit their bottom line and reduce emissions. So there may yet be a silver lining to the current situation.”

Oliver Bateman, general manager, Royal Garden Hotel:

“I strongly believe the next 12 months has a lot of potential. We have seen the way London has bounced back after a tough few years and even though consumer buying habits have changed, I am optimistic for the future. There is a possibility that with increasing energy bills, domestic travel may drop in the winter months but I am hopeful the international market can help bridge that gap.”

Lionel Benjamin and Vivian Watts, co-founders, AGO Hotels:

“At AGO, over the summer, due to some Brits deciding to opt for a holiday closer to home instead of going abroad, we did see some up-tick in occupancy. However, with rising interest rates, inflation, and energy bills, we have undoubtedly entered what is likely to be one of the toughest markets to be trading in. Not only will this have an impact on the operating of the business, this may affect staff morale as our colleagues feel the pinch.

“Without Government help, it is more than likely we will see some hospitality businesses deciding to close for the winter or permanently, which in turn will lead to a loss of jobs for the hardworking staff in the sector.

“Potentially the weak Pound will attract an increase in inbound tourism, and this may help to bolster occupancy and maintain some RevPar gains. Of significance will be the investor who identifies opportunities to acquire UK businesses which through a weaker Pound, have become more attractive and affordable for the longer term. Inflation is certainly having an impact on costs, though some manufacturing companies may see a positive attitude from buyers looking to export from the UK whilst the Pound is so low. The long-term investment community who consistently believe in the UK market will be out hunting for the deals.”

Trine Oestergaard Stafford, managing director, House of Fisher:

“In terms of energy costs we are expecting the worst. In general, businesses are able to fix costs 36 months in advance on some electricity supplies, but as we haven’t been able to lock in set rates, we won’t know exactly how bad the situation will be.”

Mateusz Sabak, co-founder, RentPlanet:

“We look to the future with great caution. Unfortunately, both the growing cost of living and the geopolitical situation have a negative impact on the entire industry. Visitors from beyond the western border are reluctant to travel to Poland, and domestic guests feel the recession more and more acutely. We also cannot forget about the possible next wave of the COVID-19 pandemic. The outlook for the future does not seem to be as optimistic as it was six months ago, but we still believe that the situation might improve.”

John Philipson, COO, Cheval Collection:

“From an energy standpoint, the three-year deal we have negotiated provides us with significant peace of mind. We are, however, expecting other costs such as laundry services and other consumables to increase by around 15 per cent. For the business as a whole, we continue to see strong demand from international markets travelling into the UK, and the weak pound does at least negate some of the price inflation we have seen recently.”

• What additional support is needed to ease the burden of increased costs for hospitality operators?

Ufi Ibrahim, chief executive, Energy & Environment Alliance:

“The new UK Prime Minister has recently set out her plans to tackle the energy crisis. Like others in Europe, Liz Truss is deploying energy price caps and a special relief package, details of which are yet to be finalised, for vulnerable industries including hospitality.

“What we need to see next is a programme of generous tax breaks to incentivise the hospitality sector to accelerate investment into enhanced insulation and new energy-saving technology.”

James Fry, founder, Beyond Apartments:

“Operators with high energy use per-square-metre of space, due to poorly insulated buildings, should have incentives (grants, free loans etc) to better insulate their buildings and add the technology like building management systems that can turn off, or reduce heating and cooling by unoccupied rooms, and install hardware that uses less water, so less water needs to be heated for on demand use.”

Dale Smith, director, Host & Stay:

“I think we have to see some government intervention and a cap placed on profits of the oil and gas producers in the North Sea. Much like the two per cent cap that is in place on energy retailers. Simply giving winter energy contributions to consumers and businesses isn’t going to solve the problem.”

Lionel Benjamin and Vivian Watts, co-founders, AGO Hotels:

“We need the government to put in place a stimulus package that is in place at least until the end of March 2023. 

“Firstly, to combat the labour shortage the Government needs to relax visa entry requirements for experienced hospitality and leisure professionals as well as students in the sector. Secondly, a reduction in VAT, reducing the current rate of 20 per cent to 12.5 per cent. Thirdly a review and slashing of business rates with a possible business rates holiday and fourthly, and very quickly finalising the plans for a support package to help hospitality businesses lower their energy costs. The challenge is so many sectors need the same, and ultimately the stimulus package needs to be funded from somewhere.

“Up until now, to maintain competitive pricing, businesses have absorbed cost pressures rather than increase their prices. However, the way things stand, businesses have no option other than to pass these on. We are already receiving invoices with a “utility levy“. Is this the way forward? Whilst a stimulus package will offer some relief and will help to balance some of the cost-of-living pressures everyone is faced with the same dilemma.”

Trine Oestergaard Stafford, managing director, House of Fisher:

“Subsidies on tariff and increased support for self-generation of renewable energy. We are actively looking at solar panels to generate our own energy!”

Will Parry, CEO and founder, ALTIDO:

“The additional support question is timely in the UK as it appears the new government will shortly be announcing new measures and importantly some of these measures will apply to businesses as well as individual homes. Additional support that would help alleviate the burden could include price caps, grants and subsidies. Any financial support for renovating old buildings and insulating them to modern standards would also be welcome and beneficial over the long term.”

Rui Silva, country manager Portugal, GuestReady:

“We believe that support from the government will be needed during this time, which could for example take the shape of a reduction in energy taxes to reduce the impact of this extra burden on all the jobs, directly and indirectly, connected to the industry.”

Mateusz Sabak, co-founder, RentPlanet:

“Like most businesses, we look forward the government’s actions aimed at mitigating the effects of rising costs. Any help for both enterprises and households is received enthusiastically, but still with a bit of uncertainty about the future.”

John Philipson, COO, Cheval Collection:

“Certainly, a reduction in VAT on hospitality would help; we saw this during the pandemic. Decoupling electricity prices from gas-fired sources so that nuclear, solar and renewables could sell energy for less would be a massive step forward, but this requires political will. Relief from business rates, again as we saw in the pandemic, could also make a big difference for a lot of smaller business. Greater flexibility needed on granting work permits to attract the European workforce back to the UK is needed. Our industry is and has been for some time facing a huge deficit on applicants and job vacancies sit unfilled for months or longer.”

Andreas Scriven, head of hospitality and leisure, Deloitte:

“Raising public awareness will be helpful, such as the government campaign to use less energy and electricity. A small tweak in messaging can flow through the whole industry (look at the David Attenborough effect) and we shouldn’t discount building awareness on the subject.

“For small businesses that do not have the backing of a big brand or investor, there are concerns about what their trading may profiles look like as we enter the challenging winter months, when energy prices are disproportionately higher. Any support from the government is a step in the right direction – having a cap on energy price takes some of the risk away.”