As the end of the lockwdown has begun in Europe, the time has come for an initial assessment of this coronavirus epidemic that has hit the European hotel industry hard. Which territories or profiles of properties have best withstood the shock, and what are the prospects for remission that are gradually taking shape?
The beginning of 2020, which now seems so far away, was encouraging... but, in the wake of Italy in February (with a 12% drop in RevPAR for the month), the whole of Europe’s hotel industry suddenly found itself at a standstill due to successive lockdowns.
In March, the first fortnight of the month still enabled hoteliers to partially contain the damage felt throughout the month, particularly in the northern half of continental Europe (-62.9% of RevPAR in Germany, compared with -92.3% in Italy) and in the United Kingdom, whose schedule for entering and then exiting the state of health emergency was later than that of its continental neighbours.
But in April the whole of Europe’s hotel industry turned red, as the blood vessels that normally irrigate it (transport, business travel, leisure stays, events, catering, etc.) ceased to function normally, plunging the entire industry into a state of artificial coma.
Various support measures were then put in place by the public authorities, firstly to manage the emergency (shorttime working, EMPs, tax deferrals, etc.) and then in the longer term (investment support, capital contributions, etc.), in order to create the conditions for the sector to get back on its feet once the health crisis is over.
This has certainly not yet taken place at the beginning of May, as can be seen from the fact that RevPAR trends were still below -90% over the first 25 days of the month. This is due to the fact that the first stages of the end of the lockdown were marked by the maintenance of strong restrictions on transport, particularly long-distance transport, thus still largely constraining travel.
But in exceptional circumstances, exceptional indicators. In fact, the recent evolution in the health condition of the European hotel industry is now measured primarily through pulses that are usually barely perceptible: the variation in rooms available for sale, reflecting in this case the proportion of hotels open for reservation and guest stays. And this electrocardiogram shows an already noticeable improvement since the beginning of May, even if the national situations are still quite clearly heterogeneous.
The Netherlands and especially Germany, two countries that are globally less affected by the epidemic than their neighbours in Southern and Western Europe, are at the forefront of the recovery: nearly 60% of the usual room availability had already reopened to the public by the end of May.
Conversely, Southern Europe, because its hotel industry is more dependent on international customers who could not yet return, has remained largely at astandstill. In between the two, and despite its early end of the lockdown (as at 4 May), Belgium is still heavily penalised by its hotel industry’s dependence on foreign customers and business events, which are still sluggish. France, for its part, has certainly put rooms back on the market since its official reopening (on 11 May), but is still lagging behind the Netherlands and especially Germany, which is playing a leading role in this post-Covid-19 recovery
However, given its good performance at the beginning of 2020 and a slightly better-than-expected recovery in demand from hotels that reopened at the end of May, France could well be, over the year, like Germany, one of the most resilient markets in Europe. Why is this? A comparison between the intensity of the epidemic (measured in number of deaths per inhabitant to rule out any bias linked to the scope of national testing policies) and the decline in RevPAR observed since the beginning of the year shows that the impact of Covid-19 on the European hotel industry varies above all according to the importance of the domestic market in hotel demand.
Thus, countries that are proportionally little affected by the epidemic such as Poland, Greece, Hungary or Austria are, from a hotel point of view, more affected than countries that have been harder hit by the health crisis such as France or the United Kingdom. However, it should be noted that the provisional assessment for the UK should be taken with hindsight, given the delay in the epidemic’s timetable in relation to its continental neighbours. On the other hand, the income statement as at 25 May appears disproportionately negative for Italy (-70%), as the traditional importance of the summer season and the earlier end of emergency health measures should make it possible to accelerate its catch-up over the last seven months of the year.
Germany is benefiting from both its strong domestic market (more than 8 out of 10 overnight stays) and its good management of the health crisis, two elements that should provide important support during the recovery phase expected in the coming weeks and months. France, for its part, benefits from its geography and the special structure of its hotel supply: even at the height of the epidemic, budget hotels continued to operate, welcoming people on the front line of the fight against the epidemic (healthcare workers, truck drivers, people with poor housing, etc.). Since its official end of the lockdown on 11 May, more than half of its budget & economy supply has reopened its doors nationwide. On the other hand, upscale & luxury hotels, more impacted because they are more dependent on international demand and less able to operate with reduced staff and costs, have generally not yet resumed service.
In addition to these category dynamics, there are also geographical dynamics: in France, the Paris hotel industry remains largely closed because it is more focused on higher ranges, large-pax hotels hosting MICE guests, or boutique hotels where many long-haul leisure travellers usually congregate. On the other hand, hotels in Paris’ outer suburbs and in other French regions have reopened more frequently, as they are more oriented towards economic segments and/or domestic customers
It should thus be noted that the dynamics observed between countries at the European level also apply to sub-national geographical areas. For example, hotel markets such as those in Brussels, Cannes, Venice, Birmingham or Hanover are particularly affected by the recession caused by the epidemic, while areas that are usually more focused on their domestic market, such as Languedoc, the Ardennes, the Baltic Sea coast or Lake Constance, are naturally more resilient. In terms of hotel resilience, it is interesting to look back at some of the lessons of the past. For example, 2003, a year marked by the SARS epidemic, combined with an unfavourable European economic context, offers food for thought.
It should be noted that France benefited from a relatively early recovery and, above all, from a more moderate decline in RevPAR over the full year and during the months of recession, thanks to the greater resilience of the rates charged. The average price in France had risen very slightly, cushioning the decline in occupancy, while fares in other European countries fell more sharply in response to the decline in OR.
Obviously, the nature of the crisis was very different at the time: not brutal, but rather slow and prolonged, as it began in 2001 with the stock market crisis in technology stocks, which were still called “dot-com” (a sign of the times, these same technology stocks, on the other hand, resisted or even benefited, economically and/or on the stock market, from the Covid-19 crisis). This dynamic was also part of the continuing decline in international tourism following the September 11th attacks.
The SARS epidemic, which had only had a limited impact in the West, was therefore only the last jolt preceding a frank and massive rebound in the hotel market observed from 2004 to 2007. The subsequent economic crisis, which came from the US subprime mortgage market and was prolonged in Europe by the sovereign debt crisis, had already highlighted the fragility of the hotel markets in Southern Europe, which are more sensitive to economic cycles, while France and Germany once again demonstrated their resilience, and the United Kingdom, after an initial, slightly sharper downturn, rebounded and then accelerated more strongly and sustainably than all the others.
It should also be remembered that with the notable exception of France and Belgium (due to the terrorist attacks in 2015 and 2016), and to a lesser extent Italy (due to its exceptional calendar of events in 2015, including the Milan World Expo), the other countries and European hotel industry as a whole were, until 2019, on an upward trend that lasted more than a decade. The Covid-19 epidemic was therefore the spark of an expected downturn, even though the damage caused by the fire was on an unusual scale, and the fire has not yet been completely contained.
Medically, when a patient’s temperature rises, his immune defence mechanisms come into play. In the hotel industry, Italy, for example, was in a more difficult situation than its peers even before the emergence of the Covid-19 crisis that hit it hard. Indeed, at the end of 2019, the RevPAR of the Italian hotel industry had barely recovered to its 2000 level.
These two “lost decades” of hotel deflation are likely to weigh in the balance at a time when Italian hotels will have to refinance themselves to cope with the loss of business in recent weeks. The Boot, which had already begun to arouse the interest of international investors in recent months, could therefore become a prime target for some of them in search of distressed assets.
More broadly, in all regions, economic pressure will increase on hotels and players whose finances were already the most fragile. Quality properties, such as the famous Métropole hotel in the heart of Brussels, or even entire portfolios, such as that of tour operator Shearings (44 hotels in the United Kingdom), have or will find themselves in difficulty. Some of these assets will deserve that those in good health bend over at their bedside, because as Winston Churchill said, “a good crisis should never be wasted”.
NB: As the situation is changing daily in Europe and around the world, our readers are informed that this analysis has been written up to June 1st with data from May 25th 2020.
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