Southern European economies were more vulnerable to the downturn in tourism than their Northern neighbours, according to DBRS Morningstar.
The comments came as a study from Horwath HTL Italy reported that the country’s hoteliers were looking for further government support after the end of the summer season.
In the report, Horwath HTL Italy said that 75% of respondents were looking for an extension of social safety nets while 80% were looking to a cut of regional tax on production, the exemption of civil/criminal liability for the employer in case of on-site contagion and a cut in the cost of labour.
Addressing actions they could take themselves, hotels were looking to restructuring (including considering firing employees hired before the pandemic), the renegotiation of contracts with suppliers, and investments in digital marketing, at the expense of a reduction in traditional marketing budgets.
More fundamental measures, such as the development of new strategic alliances, or new branding strategies for independent hotels, were not envisaged.
The opinion came despite a survey released last month for STR, which reported that many travellers had expressed the idea “they would be more likely to feel safe at bigger hotels of established brands who would be in a better place to implement the new rules and absorb any additional associated costs. Consumers also felt there would be more rigorous checks in these types of establishments to ensure adherence to government guidelines”.
At DBRS Morningstar, the organisation said that the ultimate impact of the pandemic on tourism would depend on the evolution of the pandemic, the imposition of restrictions, and government policies to ease the impact of the shock. The government support measures had been, it said, so far been playing “a significant role” in weathering the short-term impact.
The group said that Southern European economies such as Greece, Cyprus, Malta, Portugal, Spain, and Italy were more vulnerable to the downturn in tourism. By contrast, Germany, Belgium, Finland, France and Slovakia were less vulnerable according to our selected metrics.
Javier Rouillet, VP, DBRS Morningstar, said: “The high reliance on the travel and tourism sector, and the spillover to the broader economies of the Southern European countries can contribute to an unequal recovery in the euro area even as economies continue to open up.
“The tourism sector could suffer more lasting damage, resulting in some business closures and more job losses. In this case, labour will likely need to be reallocated across the economy, increasing the importance of effective active labour market and training policies to help labour re-absorption."
The recent spike in virus cases in Europe dashed hopes for a strong summer season recovery and raised the uncertainty for the fourth quarter of the year. “Depending on the evolution of the virus, prospects for next year may also be severely affected. Factors such as the business environment, transport and tourist service infrastructure, natural and cultural offerings, safety and security and price competitiveness could be important in facilitating the recovery in the tourism industry,” added Spyridoula Tzima, assistant VP, DBRS Morningstar.
In Italy, the tourism sector accounted for 13.2% of the national GDP, and in constant growth (+ 2.1% annual growth since 2014, and +1.7% since 2009), with the country recording 437 million overnight stays in 2019, 1.8% growth over 2018, ranking fourth among the EU-27 states, only behind Spain, France and Germany.
Horwath HTL Italy reported that, in the first five months of 2020, overnight stays had more than halved, with a decrease of 63% on the year.
Hotel operators were not optimistic on the return to “operational normality”, with 46% of respondents not expecting it before the end of 2021 and 29.6% not anticipating a recovery within 10 to 12 months.
Insight: As author Damian Barr pointed out a few months ago: “We are not all in the same boat. We are in the same storm. Some of us are on superyachts. Some of us have just the one oar”. If you are a country reliant on tourism, in particular international tourism, you are in the oar category and, as we saw yesterday in the Baltics, those who go domestic are likely to recover faster.
What was interesting about the Italy study was that none of this has led to a flight to the brands, something the brands acknowledged in the last results season, when conversions had risen, but not to forecast levels. When no-one is staying in your hotels, it doesn’t matter which flag is above the door.
It seems unfair for the Southern European states, which bore the brunt of the Eurozone crisis, to face having to increase debt to support the sector when the North is less vulnerable and it is hoped that the region will benefit from the creation of the €750bn pandemic recovery fund. If it does not, it is likely that the wall of money sitting at the edge of the sector may swoop in instead.