Meliá Hotels suffers after Dominican incidents

Meliá Punta Cana Beach Resort
The Meliá Punta Cana Beach Resort is one of 12 properties the company has in the Dominican Republic. Photo credit: Meliá Hotels International

Meliá Hotels International said it expected to see a “moderately positive year end” after reporting a drop in EBITDA, pulled down by lower capital gains against 2018

CEO Gabriel Escarrer blamed “sensationalist media in the U.S.” covering several tourist deaths for affecting group travel to the Dominican Republic.

For the first nine months of the year the group reported a 3.7 percent drop in EBITDA, excluding capital gains, to €373 million, with a 0.2 percent increase in global RevPAR for owned and leased hotels. RevPAR grew in Spain, Asia and EMEA and decreased in the Americas and Cuba, with the company commenting on “the robustness of its business model” following the Thomas Cook crisis.

Meliá expected a “moderately positive year end and a recovery in 2020 in the Dominican Republic, the Canary Islands and Palma de Mallorca thanks to a large number of major events.”

Impact on Share Price

Gabriel Escarrer
Gabriel Escarrer.
Photo credit: Meliá Hotels International

Escarrer addressed the recent drops in the company’s share price, which, as of this writing, was €7.51, off the three-year high of €13.89. He said, “The sharp decline in recent months in our share price is due to an over-reaction in the market to certain signs of decline in the travel industry, whose causes are temporary and non-structural, ignoring the sustained growth in demand and investment in the industry as well as the strength of the U.S. economy, the leading market for Caribbean destinations where Meliá is a major player.”

Meliá said after growing by 16.4 percent up to September, average room rates in Barcelona had begun to suffer the effects of renewed instability and conflict in the city. Results continued to improve in European hotels with a “dynamic performance” in the U.K. in spite of the uncertainty created by Brexit, with a 11.5 percent RevPAR increase at the ME London hotel.

Escarrer said, “Over the first nine months of 2019, the Meliá Hotels International business performance was affected by the situation in certain destinations, especially the Dominican Republic, where false information amplified by sensationalist media in the U.S. had a particularly significant impact on demand from groups. The information has now been discredited by the U.S. State Department.”

Last month the FBI released the results of an investigation into a number of tourist deaths in the Dominican Republic, which speculation had suggested was due to tainted alcohol from hotel minibars. The investigation concluded the deaths were not connected and were due to natural causes.

Security Committee Formed

The country responded by creating a National Committee of Tourism Security, formed of 16 government agencies, the Association of Hotels and Tourism of the Dominican Republic and the Association of Tour Operators. The government said it would develop policies, strategies and programs “for the prevention and detection of threats that undermine the country’s security.”

At the beginning of November the Dominican Republic Ministry of Tourism launched a multimedia marketing campaign that it said would “reinforce [the] Dominican Republic’s reputation as a safe and paradisiacal destination”.

Meliá reported a 32 percent drop in RevPAR in the country as a result of the instability.

By contrast, Escarrer hailed Meliá’s digital push, adding, “Both when faced with geopolitical situations and with crisis such as the bankruptcy of Thomas Cook, our company has once again seen the benefits of a more diversified business model supported by a strong direct-sales channel, with continuing to grow on a global level up to September (+1.7 percent) and currently generating more than 30 percent of our sales. Without any doubt, the digital transformation that we are implementing will help us consolidate our leadership in the Mediterranean, the Caribbean and, increasingly, in Southeast Asia, through profitable and sustainable growth.”