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Analysis

London: tourism, the antidote for Brexit

Located in the southeast of Great Britain, the capital of the United Kingdom symbolises the quintessence of the British soul and continues to absorb the influence and culture of its immigrants, who are the city's veritable catalysts. With more than 9 million inhabitants and 50 foreign communities, London constitutes one of the most important financial and cultural centers in the world.

For a more in-depth analysis of the country, types of territories, regions and major cities, see the European Hospitality Report United Kingdom 2017.

This "World City” that leans toward the sea both culturally and physically also shelters the Thames, which has had a major influence on the city's development. London was originally founded on the north bank and for several centuries only had one bridge at its disposal: London Bridge. After the construction in the 18th century of a series of other bridges, the city then expanded in all directions.

Long the capital of the British Empire, London is now the seat of the Commonwealth of Nations and a major hub for commerce, education, art, entertainment, media, fashion, tourism and transport.

Founded nearly 2,000 years ago by the Romans as Londinium, London is the fifth largest city in the world in terms of gross urban product and the first in Europe ahead of Paris Intramuros. Greater London generates about one quarter of the UK's GDP ($600 billion in 2014) while the London metropolitan area generates about one third ($669 billion in 2005). However, growth in consumption, which had been driving growth in GDP for three years, slowed to +1.4%, due to rising consumer prices (+2.7%) in 2017.

The capital became a major financial centre shortly after 1795, when the Dutch Republic fell to Napoleon's armies. London's economy then shifted to services much earlier than other European cities. Highly service-sector oriented, the city is very specialized in finance. It is the world's leading financial centre and one of the major international business centres with financial exports that contribute significantly to the UK's balance of payments. It is also the world's leading investment destination. About 85% of the Greater London population (3.2 million people) work in the service sector and 500,000 in industry and construction. In 2015, more than 360,000 people were employed in the financial sector and London was home to 480 banks, more than any other city in the world. As a result, it is also a larger global currency trading centre, accounting for about 37% of the average daily volume of $5.1 trillion that are traded according to the Bank for International Settlements (BIS).

In addition, the media distribution industry is the second most competitive sector. The BBC production company is a major employer, while other media corporations also have head offices in and around the city. On the other hand, a growing number of technology companies are based in London, notably in East London Tech City, also known as Silicon Roundabout. Consequently, the capital has been ranked European city of the future in fDi Magazine's 2014/2015 list.

London's success in the services sector can be explained by several factors such as good transport infrastructure, multiple multicultural infrastructures (schools, places of worship, cultural and social organisations) and a deregulated economy with little government intervention. Nevertheless, economic inequality remains high and London has many pockets of poverty and an unemployment rate that is higher than the national average.

The public transport network, managed by Transport for London (TfL) is one of the largest in the world. By 2012 and the Olympic Games, a 7 billion pound, or 7.9 billion euros, programme was put in place to try to improve it. The central element of this network is the London Underground or London Tube, consisting of 274 stations and 16 interconnected lines. With the need for more rail capacity, Crossrail - a 118-kilometer railway line under development in London and the counties of Berkshire, Buckinghamshire and Essex - is expected to open in 2018. To date, it is the largest construction project in Europe, with a total estimated cost of £15 billion, or €17 billion. On the other hand, the Eurostar train service links Saint-Pancras station to Lille, Paris, Brussels, but also Lyon, Avignon and Marseille.

To support its car eradication policy, the megalopolis has invested heavily in cycling transport. In 2006, the city spent 38 million euros on cycle lanes and bicycle parking. Tramway rehabilitation projects are also reportedly in progress.

London is a global connecting hub with six airports (Heathrow, Gatwick, Stansted, Luton, London City and London Southend). Heathrow is the second largest airport in the world in terms of international passengers while Gatwick is the airport handling the most international traffic. Stansted and Luton specialize in short-haul flights, while London-City, the smallest and closest to London, specializes in private flights. In addition, London-Southend is the newcomer and is used as an alternative by airlines such as easyJet to relieve congestion at major airports.

On the whole of 2017, Heathrow Airport welcomed 78.0 million passengers, setting a new record. Among passengers, 67% were leisure tourists and 33% business travellers. The project to create a new runway was validated by the government at the end of 2016, but has yet to be approved by British Airways, which would like to reduce the cost. In parallel, an investment plan of 400 million pounds, or 425 million euros, at London City airport has been approved. Its extension is planned for delivery by 2025, which will enable the transport of 2 million more passengers per year. In addition, the construction of a 260-bed hotel is planned. In the long term, these projects should make it possible to support the growth of international arrivals, which are currently limited by airport congestion.

London is one of the world's leading tourist destinations. Tourist sites are concentrated in the West End, which includes Oxford Street department stores, theaters, and neighborhoods such as Soho, Covent Garden, Mayfair, Piccadilly Circus and Leicester Square. The "World City" has four World Heritage sites (Tower of London, Maritime Greenwich, Westminster Abbey and Kew Botanical and Royal Gardens), many iconic monuments, including Westminster Palace and Buckingham Palace, as well as renowned institutions such as the British Museum and the National Gallery. It should be noted that the city has one of the the most important panels of museums in the world (240). Many monuments celebrate personalities or events that have marked the city such as Nelson's Column, a national monument located in Trafalgar Square which is generally used to mark the centre of London.

Leisure plays an important role in London's economy. The city is one of the world's four major fashion capitals and it is the third busiest film production centre in the world. With four major studios located in the city (Pinewood, Shepperton, Elstree and Leavesden), as well as numerous post-production and special effects companies, it plays an important role in the film industry. London is the only city in the world to have organised the Olympic Games three times (1908, 1948, 2012). It hosts a variety of annual events, starting with the New Year's Parade and the famous Notting Hill Carnival. In addition, it enjoys its status as the English-speaking capital of Europe and thus every year it attracts many students from the continent who come to learn the English language. As a result, an important student tourism economy has developed around this manna.

Driven by economic dynamism, the British capital welcomed 19.0 million international visitors in 2016 (compared to 18.6 million in 2015) who spent 11.9 billion pounds (13.4 billion euros).

In 2017, the number of international arrivals increased considerably with +7.5% growth over the first 9 months of the year. In addition, the city accounted for 53% of the country's tourist revenues and 40% of overnight stays in 2016.

It remains difficult to assess the long-term impact of Brexit, but it has already led to a significant decline in the pound sterling against the euro. The devaluation of the pound relative to the other main currencies thus reduces household purchasing power, consumption and potentially, in the long term, activity in the tertiary sector, which dominates the economy. Nevertheless, it is fair to point out that the price competitiveness of London's hotel industry for international leisure visitors has been strengthened by recent exchange rate developments. According to the National Statistics Office, foreign visitors are taking advantage of their purchasing power and spent 2.8 billion pounds (3.2 billion euros) in August 2017, representing a +3% increase over the previous year in the same period.

In the medium term, however, decisions concerning the location of companies could have a more significant impact on the market. These decisions will depend on how the exit modalities are negotiated with the European Union.

HOTEL PERFORMANCES

Between November 2015 and October 2016, the trend growth of the British RevPAR was curbed by the decline in demand, particularly in London, within a European context perceived as at risk following the Paris attacks and in a domestic context marked by the uncertainty preceding the Brexit referendum.

After strong growth in the chain supply in 2012 in connection with the organisation of the Olympic Games, 2013 marked a pause in the development of London's customer base, before the return of sustained growth peaking at +7.6% in 2016. This strong growth continued in 2017 with an increase by +7.8% to reach a hotel capacity of over 95,500 rooms as of January 1, 2018.

In 2017, the occupancy rate of London hotels rose slightly by +0.2 points, which is weaker growth than last year (+0.4 points in 2016). The mid-range segment, which saw occupancy increase by +2.0 points, produced this positive result that was offset by a -0.3-point decline for the high-end segment. This slight drop in occupancy was essentially compensated for by the rise in the average daily rate, which rose by +5.5%, while mid-range hotels increased their prices by +3.0%. Across all categories, London posted an increase in RevPAR by +5.0% to €121.8. In 2017, performance growth was thus driven by the mid-range (+5.5%) and high-end (+5.1%) segments, with a slight slowdown in the economic segments. Overall, growth accelerated compared to 2016 (+1.1%).

Whitbread consolidates its dominance in London with seven properties and nearly 9,000 rooms under the Premier Inn brand. Travelodge, meanwhile, is expanding in London with of over 400 additional rooms. The budget and economy supplies show the strongest growth thanks to Point A Hotels and Hampton by Hilton. The first is a newly created chain by the joint venture Raag Hotels which has taken over an existing hotel portfolio previously operated under the Malaysian brand Tune Hotels. Conversely, the capacity of AccorHotels' budget and economy portfolio in London decreased slightly due to the closure of the Ibis London Euston St Pancras hotel in preparation for the construction of the HS2 high-speed rail link between London and Birmingham.

The mid-range segment, meanwhile, recorded numerous changes with the decline of Holiday Inn (IHG) and the expansion of DoubleTree by 305 rooms (Hilton). Moreover, the boutique brand MGallery by Sofitel (AccorHotels) is making its market debut.

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