Impact of the Current Economic Situation on the Future of the UK Hotel Industry - Term Paper Example

Impact of the current economic situation on the future of UK hotel industry Introduction According to visit Britain, Tourism is a valuable foreign exchange source surpassing the contribution of crude oil, tobacco, and food beverages (Visit Britain, 2015). The UK tourism industry makes at least £6 billion contribution to the GDP from external tourism and has a combined internal and external tourism worth of £127 billion. The tourism industry in Britain employs 3 million people forming a large sector in terms of the benefits earned in terms of revenue, income, and value generation in the United Kingdom (Visit Britain, 2015). The study is aimed at analysis of the hotel industry, which is part of the Tourism and hospitality sector of the economy. The paper analyses the hotel industry, the impact of the current economic situation on the future of the hotel industry. Current economic situation Despite the recovery of the economy from the recession, the economy ha not fully recovered and the level of economic development and income generation, growth in GDP, and inflation still is lower than expected. The housing bubble in the United States is the main reason for the recession that affected global economies including the UK and its impacts is still evident. Credit crunch, reduced loan availability, and harsh economic times in the US owing to the housing bubble spilled over to the UK because of financial sectors interdependency and spiralled over to other global economies resulting in the economic recession of 2008. It is with the low level of economic growth and the slow economic recovery that this study is written to analyse its impact on the hotel industry’s future. The value of the pound has been negatively affected and is doing poorly compared to other global currencies affecting the hotel industry. Impact of the current economic situation on the future of the hotel industry The hotel industry is a big percentage of the tourism industry owing to the different ways in which it facilitates the performance and success of the tourism industry (Go and Pine, 1995, 229). The hotel industry plays an important role in the tourism and hospitality sector by through providing facilities for meetings, recreation, entertainment, meetings, and conferences. Accommodation facilities for tourists are provided by the hotel industry with many of tourist’s activities requiring accommodation. It is evident that the hotel industry is intertwined and plays an important role in the success, profitability, and revenue generation potential of the Tourism and Hospitality industry. The hotel industry is however affected by changing economic times as is evident by the effects of rail construction, WWII, and the subsequent economic growth that propelled the massive growth of the hotel industry. The hotel industry is affected in several ways by the current economic condition including the direct relation it has with the tourism industry. The fall in the demand for tourism owing to harsh economic times has a negative impact on the demand for hotels including the ability to fully finance operation costs and the reduced revenue and profitability in the market. A decrease in the tourists to the UK due to low income and poor economic performance results in a fall in the customers visiting the hotels. The need for the establishment of a customer relationship between hotel businesses and the customers is evident for the hotel industry to survive the harsh times and overcome the main impact of low demand and customers in the industry. The economic situation resulted in the fall of the pound to low levels against international currencies increasing the spending power of tourists. The UK has been a more attractive place to visit because of the reduced costs allowing the hotel industry to pick up increased new customers and providing an opportunity for the hotel industry to perform better in the future. However, UK tourists will have an augmented incentive of participating in domestic tourism because the power of purchase of the pound has diminished because of its depreciation. The hotel industry is set to benefit owing to high number of domestics tourists loading in the hotels and accessing services offered by the hotels. The impact is also an increase in domestic clients for the hotel industry despite the negative impact of the reduced price of the pound. The other impact of the current economic times is the closure of hotels, pubs, and bars in the UK owing to low turnout and inability to meet operating costs. Between 2008 and 2010, 54 pubs per week were closed in the UK depicting the harsh economic times impact on the hotel industry (Ernst & Young, September 2013, 267). Reduced turnover is the other impact of harsh economic times on the hotel industry largely resulting from the low intake of new clients, the reduced number of loyal clients, and the low spending by tourists and other clients in the hotels. Tourists both domestic and international have reduced the time spent in hotels and limited tourist activities owing to tough times. According to the report by Ernst & Young (September 2013, 267) on the hospitality industry, the turn over for hotels reduced by 7% to €15.7 billion between 2008 and 2010 depicting the impact of harsh economic times. The future of the hotel industry is looking better owing to the economic improvements that are poised to occur with the fall in oil prices and the high levels of income evidenced in recent days. Since 2012, the hotel industry has shown positive despite limited improvement and the trend will continue providing a view of a better performance of the hotel industry in the future. The effect is that the economy will grow and will aid in influencing the hotel industry to grow with the creation of 153,000 jobs between 2010 and 2012 in the hotel industry (Ernst & Young, September 2013, 267). However, the current economic environment has not so much affected the hotel industry. The future of the hotel industry despite the low growth of the economy is poised to be better as evidenced by new hotel openings in UK. Some of the hotels that have been opened since 2012 in the UK and have gone receive spectacular revidews and success include Delaunay on Aldwych, 34 in Mayfair, and Arkady Novikov opened three restaurants in Mayfair (Hotel Industry Magazine, January 27, 2012). Other openings in the hotel industry include Medlar, Galoupet, Pollen Social and Rorganic, and Hedone. The fact that hotels are opening and overcoming the tough economic conditions to succeed depicts the better economic times for the hotel industry in the future. However, several factors have to be taken into consideration for the hotel industry to succeed in the future owing to the harsh current economic environment. These include the need to ensure the clients get value for their hard earned money to gain customer loyalty and attention to serious cooking to catch the customer’s attention. Quality provision, efficient operations, and attention to detail are the other factors that will be influential in the hotel industry surviving the harsh economic times to a brighter future. The other impact of the current economic situation in the hotel industry is the need for the businesses in the hotel industry to seek measures to overcome financial challenges (Lew, April 15, 2008, 116). These measures include strategic alliances with other players allowing the businesses to achieve local and international reach for success. Strategic alliances form the future of the hotel industry through augmenting market potential and value and allowing hotel businesses to access more clients reducing the risk of changing economic conditions affecting the industry. Access to more funds and diversification of risks form the main reasons for the businesses to seek strategic alliances, partnerships, and joint alliances with the current harsh economic conditions. The future of the hotel industry is also evident to have reduced jobs and a high reliance on technology and other machinery ion the performance of daily and routine operations. Augmenting the use of technology in the hotel industry allows for efficiency, quality provision to the clients, and effectiveness. Technology also offers as competitive advantage for businesses and provides for the much needed cost reduction in terms of payment of employees who may have to be laid off. Some of the employees in the hotel industry have been laid off to overcome the cost challenges facing businesses in the wake of reduced demand and a low spending potential of the UK economy. The future impact of these include the replacement of the labour with more effective machines to allow for cost reduction and meet the demand needs of consumers for better quality, efficient service delivery, and a reduction in the waiting times. Conclusion The impact of the current economic condition in the hotel industry is the profound with the need to take stringent measures for businesses in the hotel industry to survive. The harsh economic conditions have had profound impacts on the hotel industry that will determine the future of the hotel industry. The need for quality provision, formation of strategic alliances including joint ventures and partnerships, and serious attention to cooking and service delivery is the future of the hotel industry. Reducing operation costs and the increased reliance on technology will be the other characteristics of the hotel industry arising from the tough times it has to operate in currently. Despite the myriad of challenges including lack of enough fiancés, closure and failure of businesses, low demand for services, low clients visiting the hotels, among others facing the hotel industry, the future of the industry looks better from the expected growth of the economy and ability to access funds easily. Streamlining operations to reduce costs, and formulation of focussed strategies for success will allow the hotel industry to overcome the current challenges and access a better future. Works Cited Go, Frank, and Pine, Ray. Globalization Strategy in the Hotel Industry. London: Routledge, 1995. Lew, Alan, Hall, Michael, and Williams, Allan. A Companion to Tourism. New York: John Willey & Sons, April 15, 2008. Ernest & Young (September 2013). The Hospitality Sector in Europe. Lew, Alan A, Colin M. Hall, and Allan M. Williams. A Companion to Tourism. Malden, MA: Blackwell Pub, 2004. Hotel Industry Magazine (January 27, 2012). Hotel Industry. Retrieved on April 23, 2015 from http://www.hotel-industry.co.uk/2012/01/hotel-restaurant-openings-boom/ Visit Britain (2015). About Britain. Retrieved on April 23, 2015 from www.visitbritain.org/britaintourismindustry/ Read More