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Current outlook for the hotel sector April 2020

  • 30 April, 2020

    I. CURRENT SITUATION

    The uncertainty derived from Covid-19 has generated a scenario for the tourism sector that is impossible to forecast until a vaccine is discovered. The reality is that Covid-19 has marked a turned point, before and after, inbound and outbound markets are affected and the response of governments to this crisis, with some exceptions, is inefficient and ineffective. 

    At this point,  we ask ourselves without any answers, for the time being; how and when will the lockdown be lifted? How will future restrictions affect the movement of people? How will air traffic be restored? How and when will we see the opening of hotels, restaurants and pubs? What we do know is that international tourist demand during the last 25 years (see figure 1), both tourist arrivals and tourist spending, has grown significantly except in three specific moments: a) terrorist attacks September 11/2001, b) SARS health crisis in 2003 and c) financial crisis in 2008. If we look thoroughly at these periods the average recovery of the tourism sector was between 18 to 24 months (see published article in Smart Travel News https://bit.ly/2Y1FLaJ).

     

                                         

                                                                                                                                  Figure 1:  Number of international arrivals (in Millions). Source: OMT

     

    Quick responses and coordination at international level between the different governments and experts in the tourist sector is a must. International organizations that represent the global private sector of Travel & Tourism as WTTC (World Travel & Tourism Council) have urged the G20 Tourism Ministries to act in a coordinated way when putting in place measures for the recovery of the sector. The longer it takes to lift the lockdown, will lead to irreversible impact to the sector as well as to those depending on it. 

     

    II. WHAT new MEASURES are on the table ?

    Public  Sector

    Knowing that there will be phases in the  movement of people in LOCAL - NATIONAL - INTERNATIONAL prior to the discovery of the Covid-19 vaccine, one of the many proposals by experts in the health field is to establish:

    - Health and Safety standard protocols put in place internationally to carry out widespread testings (such as when taking an outbound flight, arriving at the hotel, at the end of the stay of holiday and on the return flight).

    - Digital Health Passports or Immunity Certificates issued to those who have recovered from the  virus, although WHO has disputedthis, arguing n that there is no current evidence that people who have recovered are protected from subsequent infections.

    The complexity and challenge of the matter is that there must be an "international political quorum"  putting in place mechanisms to mitigate the devastating effects of a forced "hibernation" on the sector.

    At the EU level, the expectation will be that member states act with determination and show capacity for union, having seen great differences between Northern and Southern Europe at critical moments during the Covid-19 crisis.

    Private Sector

    Hotel chains, independent hotels, tourist apartments, resorts, hostels, bed and breakfast, etc  are a fundamental component in terms of generating customer trust to  induce them to travel and measures being discussed include:

    Implementation of Health, Safety and Hygiene plans.

    Implementation of logistics and operational plans for breakfast and dining services including shift systems that give customers access  to the restaurant, greater use of square meters per diner.

    Improvement in operational processes in relation to room service and use of facilities and common areas.

    - "Covid-19 Free" or similar certifications that ensure that the establishment is safe.
    - Elements such as separators, screens and ozone machines in rooms.
    - Designated spaces made available for testing while maintaining customer privacy.
     

    III.  Wait and see approach from HOTEL INVESTORS

    The fall in occupancy to levels below 10% and 5% and the "hibernation of the tourism sector" has caused cash flows to fall to zero, and also the valuation of assets to undergo adjustments. The analysis of assets and potential opportunities will slow down and depending on the nature of the asset, whether it is vacation or urban and its location, will have a greater or lesser adjustment in terms of valuation.

    Investors are currently taking a "WAIT AND SEE" position and observing the goverments movement and their decisions on when to re-open the sector. Investors are also looking carefully at how tourism demand is evolving and movements in international air traffic, with special interest in destinations such as Balearic and Canary Islands,  which are highly dependent on air transport.

    According to IATA and in the current scenario, the severe restrictions on air travel will last three months, with recovering starting at the end of the year. 

     

    IV. CONCLUSIONS

    - The tourism sector has shown resilience during times of crisis with an average recovery period of 18 to 24 months.

    - Right now the level of uncertainty is extremely high, therefore, it is necessary to wait a period of three to four months to verify the scope of the situation. This situation will depend on the liquidity programmes approved by the EU and the international efforts to establish mechanisms that allow people to travel.

    - The hotel sector will experience an increase in OPEX (operational expenses) due to the implementation of security and prevention measures that protect customers and employees.

    Likely there will be a reduction in the number of seats on flights to guarantee a  minimum safety zone, which will have an impact on airline costs, increasing the final price and affecting package fares (flight + hotel).

    - The decrease in demand and the reduction of purchasing power will result in a reduction in hotel rates, and increase the importance of developing cost optimization plans.

    - More space requirements per guest in terms of square meters as a preventive measure against possible contagion. This is particularly relevant to the  MICE segment.

    - Further considerations required in hotel common areas such as reception, lobby, dining area and facilities available to guests to ensure
    they are "Covid compliant".

     

    GET IN TOUCH

    David Vime
    Managing Director Maestros Hoteleros®
    dvime@maestroshoteleros.com

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