Why Spain's strong hotel performance could be short-lived

Europeans have been traveling to Spain in scores. Will it continue? Photo credit: kanuman (Getty)

Brits and others are flocking to Spain—but will it last?

This results season has seen tour operators and hotel operators hail the performance of Spain, aided by UK customers undeterred by the fall of the pound. However, there are fears that the growth will be impermanent: A recent study from Christie & Co warned that Brexit could considerably dampen occupancy rates and average rates in Spain as close out as 2018. 

In 2016, Spain registered a new record of tourist arrivals reaching 75.6 million for the year, a 10.87-percent increase compared to 2015, with a quarter of international arrivals from the UK, according to INE.

Property broker Christie & Co said that: “Brexit has not had a substantial impact on the behaviour of British tourists visiting Spain so far. Tour operators and hoteliers’ expectations on the future consequences of Brexit are not positive: More than 70 percent of our survey respondents expect negative repercussions on their businesses, estimating that Brexit could considerably dampen their occupancy rates and average prices. However, they consider that negative effects will not impact the Spanish hotel sector until 2018.”

What Hotels Say

For 2016, NH Hotels Group described performance in Spain as "excellent," which helped to drive EBITDA up by 21 percent, as RevPAR in the country rose by 13.5 percent against 5.8 percent for the group as a whole. 

The company has capitalised on the growth, with the sale and leaseback of the NH Malaga in February for €20 millioon, helping the group to reach its disposal target of €140 million for 2016. 

NH Hotels is not leaning on its resorts for its future results. During 2016, it signed agreements for 16 hotels, most positioned within the upper-segment brand, in cities including Milan, Venice and Santiago de Chile.

Meliá hailed its full-year results “especially in resorts” and announced that it was “growing again” in Spain, adding three hotels. In the wider Mediterranean region, the company said it would look to drive rates by renovating and repositioning in mature destinations.

Meliá described “extraordinary results” in Spain, where ReVPAR rose by 9.4 percent, contributing to the 14-percent increase in EBITDA. The company said that results remained robust in resorts and in hotels in cities popular with tourists. 

The company said that Brexit had “not yet caused a significant drop in sales through British tour operators, although there has been a slight slowdown in melia.com sales in the UK market caused by fluctuations in the exchange rate.” Meliá added that Brexit effects included an increase in advance booking to reducing potential risks.

Risk-averse Brits was a theme echoed by tour operators. Thomas Cook CEO Peter Fankhauser told analysts that “the all-inclusive part of the UK holidays are around 60 percent in summer and that is probably even going up a little bit, because the customer feels protected from any currency movements, because we are hedged." 

Christie & Co said that hoteliers surveyed feared that the immediate consequence of Brexit could be a reduction in both the average length of stay as well as the expenditure at the destination. They considered that the total volume of demand might not be affected, but that they expected to see some shift in demand with holiday-makers downgrading to three-star stays. 

Building loyalty before budgets bite will be key this year.

Katherine Doggrell is an editor at Hotel Analyst, the U.K.-based news analysis service for hotel investors.