Business growth indicators in the hospitality and tourism sector took a bit of a nosedive globally in Q1 according to our International Business Report (IBR). Expectations for increasing revenues, profits and investment all fell over the past three months. This surprised me slightly; after all, the global economy is picking up, the recovery seems to be moving onto a more sustainable footing and discretionary spend should follow. Why therefore are hospitality and tourism businesses not more positive?
The global recovery still has a way to go, particularly for businesses in hospitality and tourism. 48% of them cite economic uncertainty as a growth constraint, ten percentage points higher than the all-sector average. While developed markets like the US and Europe have shown improvement, many emerging markets are struggling. Elections in India and Indonesia, social unrest in Latin America and Thailand, and slowing growth in South Africa and Turkey are clouding the outlook. Emerging middle classes in these markets are key consumers of global tourism, so any slowdown will have a global impact.
Businesses in the hospitality and tourism sector are concerned about rising energy costs, with 45% expecting it to constrain growth, ten percentage points above the all-sector average. While social unrest in North Africa and the Middle East hasn't yet caused significant price hikes, the US shale revolution has kept global prices in check. However, businesses in the sector—hotels, restaurants, golf courses, and cruise liners—are large energy consumers, and even small changes can impact profits. Given the interviews took place before the Ukraine crisis, energy costs are an ongoing concern.
Given that uncertainty and energy costs are largely driven by global phenomena, offering tangible advice to businesses is complex. But there are steps businesses can take to mitigate these issues. In the current climate I would suggest revisiting your marketing and investment strategies to make sure they are not too focused on emerging market opportunities, while neglecting those in Europe and North America. And this could also be a good time to invest in adopting energy efficiency measures, or perhaps consider more sustainable sources of power such as installing solar panels.
Insulating your business against global economic trends may demand resources in the short-term. But in the longer term it could provide you with a competitive edge.
Gillian Saunders is global leader for hospitality & tourism at Grant Thornton.
