Coronavirus ‘double whammy’

Dublin Ireland

The coronavirus represented “a double whammy” to a sector which was already dealing with oversupply, according to STR.

The company reassured hoteliers that they shouldn’t panic, pointing to stable average room rates and the sharp recovery in performance after the Sars outbreak.

Robin Rossmann, STR’s international managing director, said: “From 2018 to 2019 the majority of the market went from one where supply growth was outstripping demand and occupancies went down. That’s why 2019 was a tough year for the Middle East and Asia Pacific and there was a slowdown in occupancy growth in North America. That’s the context that we were in before the outbreak of the coronavirus.”

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Rossmann said that there was 2.2% of supply growth due in Europe this year and that, while last  revpar as a whole was up by 2.6%, there were cities where it had fallen due to oversupply.

He said: “There is no doubt that coronavirus is now causing significant declines in performance across many hotel markets in the world.  The big question many are asking is how big could the decline be and how fast could it recover. Focusing on the positive - when we look to Sars we can see that even after a severe decline, hotels recovered occupancy rapidly - within three months of eased travel restrictions - which happened one month before the WHO announced Sars was contained.

“It has affected our industry more than many others because of short lead times. It’s no longer just a Chinese issue. We can’t really forecast what will happen with performance but if things progress as they have in Asia Pacific we will likely see similar results. It is likely to be a short-term event, and if that is the case we are likely to see a sharp recovery. The recovery could be slower than Sars because people and businesses are more cautious and because it has spread further.  

“In terms of operations, you shouldn’t panic and you should leverage all the data that you have. The number one thing to remember is that we need to do our jobs but it’s important to remember what’s important. This is about lives, not numbers. There are over 3,000 deaths so far and each one is a relative, it’s a friend.”

Looking to Asia, STR said that over 40% of the hotels in Asia Pacific had closed. As an example of the impact on performance, for the rolling 28 days to 1st March there had been an 87% drop in revpar in Hong Kong.

Rossmann said: “We had forecast revpar up 0% to 2% [in Europe] pre-coronavirus and what we saw was something quite incredible. The turning point was the cancellation of the Mobile World Congress in Barcelona on 12 February and what we then saw was an avalanche of conferences being cancelled or postponed. It was when major corporates started acting ahead of government advice and issuing travel bans. From the middle of last week we saw a huge number of corporates restricting non-essential travel. I’d watch this space in the coming week to see the impact of some of these travel bans.”

Rossmann said that, while occupancy had fallen, rates were less affected. He said: “Cities such as Milan and Venice have seen occupancy declines of 70%. This is not something to panic about. There hasn’t been much impact on rate for medium impact cities. High impact cities are not necessarily seeing rate declines. Hotels which have an international focus will be affected more than domestic, but domestic markets will still seen an impact.”

Looking at the UK he said: “The big question in the UK is this going to be a gateway city issue or a regional impact? Looking at last week suggests that it will be more widespread. We have seen some challenges in Dublin. There is still business on the books, but it is below this time last year and it is reliant on some big events.”

 


Insight: Wolfgang Neumann, chairman, Hotelschool The Hague, told us: “As the UK government prepares for one fifth of workers to potentially be effected in the next three months, it indicates that we are dealing with a potential crisis, but it’s not clear yet - although travel and tourism will be hit hard this year.

“It’s a strong and resilient industry which has always come back fast. It might be hit harder this time and might take longer, but we have learned from the past”. And Neumann makes a good point. What we learned from past events is that video conferencing isn’t going to take off, people need to travel to do business and connect with each other.

One of the factors driving the slump after 9/11 was not fear of terrorist attack, but fear of being stranded on a trip, as many were. Health is, of course, a priority for those issuing travel bans. They also don’t want employees quarantined around the world - or even at home away from key clients.

As Rossmann pointed out, the current travel bans were being imposed by companies, not governments. The French government has spoken out against closing borders, pointing out that walls don’t stop viruses. At the moment, money trumps politics and health rules overall. The hope is that this crisis will pass quickly and the recovery will be sharp and joyous. Should it go long, fears over the wider economic health of the planet will grow.

Rossmann added that he didn’t expect to see a global financial crisis as a result of the outbreak. The IMF has said that the spread of the coronavirus means that hopes for stronger growth in 2020 will not be met and that growth will be below the 2.9% rate for 2019, but not that it expected a contraction. It made $50bn available in emergency funding for countries hit by the outbreak. The Federal Reserve has also stepped in and others are likely to follow to try and see a slump off at the pass.

In the meantime, to quote Rossmann, don’t panic. The post-9/11 panic left the way open for the OTAs to make their mark on hotels desperate to fill rooms and only now are hotels reaping the rewards of direct booking strategies. As Neumann said, hotels have learned from the past. Cool heads are required.

 

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