The hotel market & COVID-19 - 03.20 • Businesscoot

The situation at the beginning of 2020 January 2020 marked a slight upturn for the hotel sector, with indicators rising both in…

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The situation at the beginning of 2020

January 2020 marked a slight upturn for the hotel sector, with indicators rising both year on year compared with January 2019, which was heavily affected by the yellow vest crisis, and compared with the end of 2019, which was hit by an unprecedented transport strike. At the beginning of January 2020, RevPAR thus showed growth of +5.5% (vs Jan 2019), reaching €53.60, with an occupancy rate of 57.8% showing a slight recovery after December 2019.

The collapse in demand

The hotel sector has been suffering from the collapse in foreign demand (particularly from Asia) since the beginning of the year. Cancellations of stays by Chinese tourists (who account for more than 4 billion in tourism revenue per year) stood at 80%–90% in January and 100% for February, March, April and May. The European Commission’s Internal Market office estimates that the absence of Chinese tourists costs the EU €1 billion per month (in tourism alone). [European Commission’s Internal Market office]

Since March, domestic demand and tourist arrivals from other parts of the world have followed the same trend, as lockdown measures have become widespread in a large number of countries.

The situation in March 2020

As of 12 March 2020, even before lockdown measures in France, the hotel sector was already reporting a 30% to 40% decline in activity nationwide, and as much as -90% in outbreak hotspots. Hotels are being hit hard by cancellations of overnight stays, the closure of their bars and restaurants, and cancellations of seminars, conferences and other business events, which have been one of the main sources of revenue diversification for establishments for several years.

As of 21 March 2020, owing to a lack of guests, more than 1,800 hotels are closed, or half the properties belonging to the Groupement National des Chaînes Hôtelières (a trade association, a member of the Union des Métiers de l’Hôtellerie, bringing together the main hotel chains operating in France).

Unemployment : the sector is having to make widespread use of temporary layoff or short-time working schemes. With an average of 10 employees per establishment, more than 18,000 hotel employees were reportedly on short-time work as of 21 March 2020. This measure only applies to permanent contracts: staff on more precarious contracts (fixed-term or casual workers) are dismissed in most cases. [Les Echos]

Stock market : the stock market impact is immediate and very strong, from the beginning of January. Here we consider the case of Accor, the largest French player in the hotel sector: its share price fell from 42.12 on 2 January 2020 to 26.06 on 20 March 2020. The French hotel leader’s shares fell by 38% over the period. [Accor]

Recovery prospects

Recovery prospects are currently very mixed, particularly because occupancy rates may not pick up when lockdown measures end. Indeed, cancellations of stays by foreign tourists have already extended into the summer. The upscale and luxury segments, which are most dependent on foreign guests, would be the hardest hit. (See data above).

Nevertheless, some factors bring more optimism to these forecasts:

The sector’s mobilisation in support of the government, which could bring some relief to hotel establishments and businesses. Indeed, as of 21 March, 500 hotels and 20,000 rooms were made available to lorry drivers, healthcare staff and homeless people.

Faster recovery outside Île-de-France: domestic demand can be expected to recover much faster than foreign demand (resumption of business travel in France, reopening of hotel restaurants and bars, resumption of events…). Yet only the Île-de-France region is highly dependent on foreign tourists: the rest of the country should therefore see a faster recovery in activity.

Tour operators : in mid-March, SETO (Syndicat des Entreprises du Tour Operating) asked tour operators to arrange the postponement of package holidays with a credit voucher valid for one year. This should in particular ease cash flow pressures and drive a recovery within that timeframe.