Covid-19

Baltics has potential for rapid recovery 

The Baltic States were set for a faster recovery than many of their neighbours, with low reliance on long-haul travel and strong underlying fundamentals, according to an article from Christie & Co.

The company reported that, in July, around 90% of the hotel room stock in the capitals of the Baltic States were open, with “positive signals conveying that the worst could be behind us”. 

Kimmo Virtanen, director, Scandinavia, Russia and the Baltic States, Christie & Co, told us: “The future is bright and there are a number of fundamentals in place that are supporting faster recovery. There is still high demand in the Baltic region, there is lots of interregional travel from Scandinavia and other nearby countries - the eggs are not all in one basket, there is not one dominant source market.

“There has been an increasing amount of new supply with international branding. Now, it is like a forest fire, there will be casualties, but what will come after the fire? Small, independent, unbranded operations are likely to feel the heat. This is nature, this is evolution.”

The article, authored by Reinis Ludins, consultant, Christie & Co, said: “While hotels in the Baltics had not been obligated to close by the respective governments, many hotels closed business temporarily due to a radical collapse in demand that started in mid-March and escalated further in April.”

With most of the hotel rooms in the capitals of the Baltic States being closed in April, the recorded occupancy levels dropped below 5% mark in all three markets, with revpar declining by almost two thirds in March compared to the previous year before almost fully collapsing in April.

Since the steep drop in March and April, the arrival of the holiday season combined with pandemic related safety measures being relaxed, the hotel markets across all three capitals demonstrated some signs of recovery. While the recorded revpar levels were still nowhere near the previous year’s levels, the revpar direction was upward trending.

As the Baltic States were among the least affected countries in Europe, there were few restrictions left in place. The most notable restrictions affected travelling to and from countries with a relatively high amount of new Covid-19 cases and mass gatherings. =

European overnight demand accounted for close to 90%, with long-haul demand accounting only for approximately 10% of total overnight demand in all three capital markets.

Virtanen said: “This is a cyclical business, now the downturn is deeper and less expected, but travel will not stop. Underlying travel will return, the question is how quickly we will recover. 

“In the Baltics, there hasn’t been a lockdown, all the airlines from the source markets have been bailed out. If you look at the economies of the countries, they were all in good shape. If the countries need to take on more debt, they won’t be overburdened. If you look at the composition of GDP and how much generated from tourism, it is fairly low. If you imagine an engine; if one piston isn’t firing, then it doesn’t stop the engine from working. That’s the issue in countries where dependency on tourism is higher. 

“If you look at other factors - the GDP drop - it was 5% to 7% in the second quarter, against an EU average which was 12%. The impact hasn’t been so severe. If you look at sentiment, it’s ‘the most evil of all recessions’ and if one person starts to believe that then it spreads to others and it becomes a trend. The sentiment here is much more positive, it’s not so much doom and gloom and that is why I am confident.”

 

Insight: The approach of other countries and regions to the pandemic has become a fascinating Ultimate Benchmarking exercise and the longer it continues, the more the human and economic cost  - and their variances - become clear.

The Baltic regions have a reputation in the rest of the world for being pretty on top of things as far as quality of life go and it should have come as no shock to see that they have also managed the virus well so far. What has added to the hope for the hotel sector is that, although there were moves, particularly in neighbouring Sweden, to go after the international traveller, these were in their nascent stages.

It remains to be seen what a possible second wave holds, although with a domestic focus the Baltics are likely to maintain their optimistic outlook. As Virtanen was talking to this hack, he was at a conference where water skiing was available. Sounds like cause for celebration if nothing else.