Europe has now reached the bottom in terms of occupancy, as a results of the number of forced hotel closures, STR reported.
The company pointed to the recovery in China as an indication of how growth might come back in Europe, with occupancy rising again after two months.
Robin Rossmann, managing director, STR’s international business, said: “It’s fair to say that we are now at the bottom. There is no doubt that we are heading to uncharted territory, never before have we as a society been asked to stay at home. The reality is that whether through government mandates or through choice, many hotels are being forced to close.
“It is going to be bad, the best case scenario that there will be a big bounce back. But there are those more pessimistic. Most economists are expecting a deep recession, more significant and more painful than the 2008 or 2009 recession. what’s going to drive this best case/worst case scenario is how long it stays around and what the impact on the economy will be. A lot will depend on what countries open up travel restrictions and when and these are likely to be domestic first.
“We have to plan that this will get under control in the coming weeks and assume that there will be an opportunity to travel again in this summer. A lot will depend on when airlift comes back. The hotels which have more flexibility are likely to do better.
“In terms of more long-term recovery scenarios, it depends on the impact of the recovery and how long it takes to get the economy under control. In the 2008/9 crisis it was a 2.5-year recovery in occupancy in the Europe and the US. Rate decline is likely to be more severe, like 9/11. Things which make it more challenging are increased supply growth and in Europe we are in the middle of the highest supply growth ever for hotels.”
In China and Europe the declines were lower than the global financial crisis. Looking to China as an example of how long the market would take to recover, STR reported that occupancy had fallen to to 10% and had now doubled since new cases stopped. The group said that domestic markets were doing better at this stage, unsurprising given the international lockdown. Between 40% and 50% of hotels closed, for, on average, two months, and they were now reopening, with 87% of hotels now having reopened. “So we have at least two months of this in Europe,” said Rossmann.
Rossmann drew attention to comments from Barry Sternlicht, co-founder of Starwood Capital, earlier this week, who said: “We’re in a world war but it is a 90-day world war there, it is not a four or five year world war”.
Rossmann looked to the impact of different government responses, with Singapore never seeing a fall of more than 50% “because the government has done an outstanding job of controlling events. Singapore is reliant on international arrivals, but they didn’t do a shutdown, there were strong controls monitoring people coming in”.
Aoife Roche, director of account management, STR, reported that as at 23 March, key markets in Europe had seen forward business “collapse” as hotels closed, with pickup declines moving into double digits. Looking forwards 90 days, there was still business on the books “but as the hotels close over the coming days and weeks, those numbers will change”.
The recent mandate closure of hotels means that last week, UK occupancy was down 23%, but that for week to 22 March, it was down by 67%, with London down with 87%. Roche said: “The luxury sector started to suffer a lot earlier, five to six days earlier, as the international business started to dry up and the corporate travel bans came in.” London forward occupancy was 20% as at 23 March.
Germany is now sitting at 85% decline in occupancy, with France at 80% to 90% declines across the market.
Insight: At times like these hitting bottom is a source of happiness - the only way is up, right? Depending on how long the shutdown lasts (and no looking at the US to see how that’s going), China is providing some hope, an aspiration that, in two months’ time, we could get to 20% occupancy.
Once the recovery begins, it’s a question of how and where. Rossmann said: “While there is any kind of risk you will find it hard for anyone to arrange group travel. Recovery will be focused on independent travellers. Discretionary business travel is also likely to be cut back while companies look to the impact. Ultimately travel is very resilient - every time it has had a shock it has bounced back. Yes there will be changing behaviour, but it will bounce back.”
He concluded with a quote from Lord of the Rings: “Galdalf said to Frodo. We do not get to choose the time that we live in, but we do get to choose how we live in them.”
To continue with the Tolkien theme: not all those who wander are lost. Not all of wandering is lost either, but consumer surveys and reports from China suggest there will be caution once hotels reopen and businesses must plan for that.