Government policy to affect recovery

(Paris during coronavirus)

Differing policies and approaches from governments will affect how rapid the sector’s recovery is from the COVID-19 outbreak, according to STR.

The company said that the bounce back was unlikely to as fast as it had been after Sars, but was more likely to mirror the 2008 financial crisis.

Robin Rossmann, managing director, STR's international business, said: “What has started as a humanitarian crisis seems to be rapidly evolving into financial crisis and we in the hospitality sector are on the front line. It’s important that we never lose our faith and our optimism but we are facing some hard decisions.

“Hotels are highly leveraged businesses, in the form of both loans and payroll. Many and most hotels are unable to operate for months or even weeks with that level of cost and no money coming in. It seems we are heading towards much worst case scenarios than we had thought.

“It’s unlikely it will be a v-sharped recovery like Sars. The virus has spread much further and the restrictions on travel have been much larger and it has become a much bigger, wider crisis. This is not what we are forecasting, but the nearest comparison is the 2008 financial crisis. Even when it comes to manufacturing, the challenge that many business are having is that we have integration chains and without parts coming from China and all around the world and it only takes one part not to be able to build a car.

“There have been difference policies and approaches taken by governments all around the world. This means that, even though China may get to a position where it has no new cases, it may not be able to open its borders to its business.

“Forecasts are anywhere in between tree months and well into 2021. In that case 2008 is a relevant comparison. The extent of decline and recovery will depend on the length of the virus and the government response.”

Looking at the week of 9th to 15th March, the company reported declines in every country around the world, with occupancy in Italy down 93% “at the peak of its crisis”. UK and US were around a week or two from that level of decline, with US down 27% and UK 23%. Rossmann said: “Europe is trailing around one month behind the trend of what we saw in China.”

He added: “When answering whether this will be as bad as the global financial crisis, the answer is ‘no, this is much worse’. There are some green shoots of recovery in China, case are almost zero and occupancy doubling in the last month.

“The last two weeks have been the hardest in Europe, with most cities under 40%. Looking at business on the books for the next two weeks on 2nd March, most places were at more than 50%, next week the same. The week commencing 16th March, there was a massive decline of business on the books. London, Madrid and Amsterdam have business on the books in the coming months, but it is quite fragile.

Rossmann commended the industry for “changing cancellation policies and making rates flexible. It helps people make plans and it helps with the recovery”.

Looking at the UK, Thomas Emanuel, director, Europe, STR said: “Up until Saturday things weren’t looking too bad, 60% occupancy Saturday night, by Tuesday down to 22%, a drastic decline as the restrictions were bought in by government. Revpar declines down 77% on Tuesday.

“There is no city that has not been affected by this. London has been down 42% for week 9th to 15th March, as the centre of the outbreak in the UK. Those UK markets which are predominantly domestic driven are having less of an impact initially, but we expect that to increase. There is some business on the books for the next fortnight, but we expect that to soften.”

The company said that for Germany it saw the decline in occupancy accelerate when the country hit 2,500 cases, with just 13% occupancy on Thursday night. At the beginning of this week, revpar was now more than 80% down nationwide. Occupancy was down 49% for the week.

STR said that, in central and eastern Europe, initially, the region was not as affected as the Western markets, but there had now been “significant declines” although there was a brief window of hope in Sofia and Budapest, were rates were up 13% last week.

Spain occupancy was down 50.4% for the week of 9th to 15th March and down 39% in Portugal. In Spain, once cases went to 3,000, occupancy went into what was described as free fall. Madrid finished with 11% occupancy at the end of the week.

France followed the same pattern from 17th February; as the cases moved into the thousands, occupancy fell. Paris saw revpar supported by Paris Fashion Week at the end of February, but as soon as it was over it went into decline. Aoife Roche, director, account management, Europe, said: “It’s been a difficult two years for Paris, it’s one thing after another. There had been green shoots but now it has gone negative again.”

Rossmann concluded: “It is having a devastating impact, on lives and families and emotional stress. Our scenarios for how this will play out have worsened. Something we will have to answer is how this will have an impact on travel habits I am positive on the long-term demand drivers for travel. Once people feel safe, they will want to travel again.

“It’s going to be a tough time and things will get tougher. We want to be remembered by how we acted: results are out of our hands, reputation and relationships are something we can work on right now. There is likely to be a massive bounce back, hopefully in the summer, so you need to plan for that.”

 

Insight: Here at Questex we have asked those of you reading this to join us in asking for Europe-wide government assistance to protect the sector and almost 1,000 of you have signed our pledge. Authorities are waking up to the need to protect jobs first of all and then the liquidity of the companies themselves but, much as the response to the virus itself, this has varied around the world.

As we noted yesterday, CEOs have been focusing on the US, because that is where many of them are based, yes, but also because in hotelier Donald Trump, that is where they are most likely to get a friendly reception. In Europe the picture is as varied as the approach to the virus. What action is taken matters not only to how employees and businesses survive the current phase, but how they are viewed for future development. We are told that outbreaks of different viruses are likely and we hope that much will be learned from this one in terms of response. But investors are also likely to see some territories as riskier than others depending on what their governments did during COVID-19.

Increasingly, as Rossmann pointed out, what we want out of travel will have changed once we are out the other side. The impact on the sector after 9/11 was driven by fear of being stranded rather than fear of being caught up in an attack directly. Here, human impact will be more direct, but fear of being stranded remains and will be linked to concerns over general health and safety. Hotels must try to meet these higher standards with less in the pot. That cannot be done alone.