COVID-19

Europe set for June recovery

Europe was expected to see a recovery in hotel performance in June and July, according to STR, with the company warning that “recovery” did not mean a return to previous levels of operation.

The recovery was expected to be driven by domestic travel, with the caution that a full recovery would only be seen once the corporate market decided to travel again.

Robin Rossmann, managing director, STR, said: “The recovery has continued across the board in the past two weeks, however, there is a question over when that level will plateau in China. There is a point at which demand recovers in domestic leisure and business, but until you have international demand and confidence in the economic recovery, there will be a plateau. There are hotels which have been designed to sit next to conference centres and that demand will not come back this year. It was the corporates turning off the travel tap before governments said they must which started this downturn. It will take a number of events after governments say it’s OK before corporates turn the tap back on.

“When will get back to 2019 levels? There are a number of challenges that need to be overcome in the short term. There are key demand drivers to be assessed and there has been significant supply growth. Recovery doesn’t mean we get back to where we have been, it means we get off the lows. We will have holidays, but more attractive to local demand than to foreign.”

Looking at the global picture, Rossmann said: “China hit 15% occupancy three months ago and it’s taken that time to get to 50%. It took China about two months to go from half the hotels open to all of the hotels open.

“It will be leisure demand which comes back first. It’s what happened in China and what happened in the US. Occupancies of economy hotels have been almost double than the top end of the market and we expect to see that in Europe. Lower-end extended stay has also seen occupancy recovery faster.

“The US has continued to defy gravity and is recovering. The Middle East, Australia and New Zealand are stable. Recovery has started in Europe and governments are trying to do what they can to encourage travel and tourism. I expect that as the market starts to recovery, the vast majority of hotels will start to reopen, even though they will be opening below levels of breakeven, because the prospect of staying closed is scarier - at the end of the year they should be at breakeven.

“In Europe, occupancy has edged up to 15% occupancy, I have no doubt that we will see a strong recovery starting in June and going into July. Forward occupancy is in many cases half or a third of what they are usually and cancellations are still outweighing bookings in May.

“Things are getting better, they are, this thing can be controlled, will be controlled, whether or not we get a vaccine. And we are starting to see things ease up on travel restrictions and countries such as Germany have told their citizens it’s OK to go on holiday.

“Some things are going to take longer to recovery. Those countries who believe they have conquered the virus are very cautious about opening up to those who haven’t. In the UK there is pressure to scrap the 14-day quarantine, but in my opinion it will disappear when it becomes apparent that it is not required.”

Rossmann pointed to the other issues affecting hotels, commenting: “There will be a fundamental structural change in the airline industry. There are decisions being made to cut production, to cut jobs and that will be a headwind for the hotel industry for some years to come.

“It is the economy that I worry about the most. I have not seen any forecasts which give me hope.”

 

Insight: Recovery doesn’t mean what you think it means and elsewhere this week, this hack spoke to Lambis Pahiyiannakis, acquisition manager, Sani & Ikos Group, who told In Focus that the company would reopen some of its resorts at a loss, in part to continue to employ loyal staff. And that is how to keep them loyal.

As Rossmann noted, some hotels will be opening to stave off the madness and, we suspect, behind the scenes there will be power struggles between the many players in the hotel stack to open or not. No-one wants to be left behind, but no-one wants to get out there first.

So much as we have seen strong performance in the US because the country largely stayed open, so in Europe we see the many countries and their different approaches meaning many and varied responses. This is likely to see many and varied levels of distress, which will also depend on the mixed enthusiasm from government for supporting the sector. An argument for a united states of Europe? Ask Angela Merkel.