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Hotel crises: Back to the future

The crisis that has hit the hotel industry since March 2020 is of an unprecedented magnitude and is attributable to an exceptional combination of multiple health, transport, and economic factors. This of course renders irrelevant any direct extrapolation based on past crises. However, taking a look back at them can enable us to draw some key insights and better understand the dynamics currently at work, as well as the future prospects that arise from them.


The Covid-19 crisis is unprecedented in that it is primarily the result of an interruption of operations related to the lockdowns and the various protective measures against the epidemic that have been implemented around the world.

In this sense, the supply and demand for transport and accommodation have been put into an artificial coma for health safety reasons. It is therefore initially an external pressure, and a withdrawal linked to the presence of an imminent risk affecting the physical safety of people. Given the scale of the phenomenon and especially its spread throughout the world, the current situation hardly lends itself to comparison with the SARS epidemic of 2003.

However, international travel and tourism largely closed in what was then the only “active” focus, Asia (especially China). Similarly, if the world were to enter a stabilization phase without a massively available vaccine, but long-haul flows were to resume, such a “containment” scenario could happen again on a much larger scale.

This would lead to the (re)imposition of border closures to regional blocks or countries where more active clusters of virus circulation would reappear. In this scenario, the world would then move towards “stop-and-go” tourism, which is marked by strong uncertainties.

Even though yesterday’s epidemics may not be very similar, there are other issues that can teach us a few lessons. In particular, how do customers react when there is a risk to their safety and physical integrity when they travel?

The attacks that have hit European soil in recent years show that the drop-in demand is rapid and intense, but also that the “return to normal”, i.e. the level of demand corresponding to the economic conditions of the moment, occurs relatively quickly as soon as the perception of risk diminishes. Graph-1

Thus, following the November 2015 attacks, Paris took 14 months before resuming a positive trend and 35 months to return to its pre-attack average level.

Brussels, which was also hit in March 2016, but which had begun to fall in November 2015, due to the geographic ties of some terrorists involved in the Paris attack, recovered in 12 months and returned to its pre-crisis level in 33 months.

Berlin was only slightly affected by the attacks that plunged its Christmas market into mourning and was able to maintain a positive dynamic, even if it can be estimated that the city slightly underperformed for about 19 months.

This illustrates two important dynamics:

- When demand is constrained by exogenous factors, as in the past with the attacks and now with the health crisis, the “return to normal”, i.e. to hotel performance levels corresponding to the economic fundamentals of the moment, takes place relatively quickly.

- The impact of risk on behavior tends to diminish when it is prolonged over time or spreads geographically, even if the real risk is still present and significant: we can speak of a form of “habituation” of consumers to the presence of risk.

The hotel performances in the summer of 2020 (see page 45), more dynamic than expected in many destinations where domestic travel was not constrained and was able to fully substantiate itself, has thus demonstrated this.

Finally, an analysis isolating more specifically the trends in occupancy rate and average price clearly shows the differentiated evolution of these two indicators: in the case of Paris (whose profile is comparable to Brussels’), the inflection point in terms of average price lags behind the inflection point in terms of OR by 10 months.

In other words, the resumption of frequentation precedes that of price: beyond any security and/or sanitary situation, this is a constant observed systematically throughout all hotel crises. In order to see the first signs of a recovery, we must turn to the OR, before the dynamics of PM and RevPAR begin.


Even though certain exogenous factors can temporarily affect the hotel industry, the economy is the heart which nourishes it; in particular through its vessels, which are transport and events. As long as these are no longer able to supply it (notably via air transport and MICE), the hotel industry will continue to lack oxygen, even if the rebound in road and rail transport already offers some relief. Even when this supply circuit is back in working order, not everything will be solved, as it is the economy itself that has been most fundamentally affected by this crisis. Therefore, that which was at first sanitary becomes economic.

However, the evolution of hotel performance is historically very strongly correlated to that of the economy and therefore to one of its main indicators, the GDP. This is particularly the case in the top three European economies, where the domestic clientele is significant. Graph-3Graph-4Graph-5

The comparative analysis of their GDP and RevPAR evolution curves calls for some remarks. First of all, the profiles of the curves are very close and when they deviate, as is the case in France in 2015- 2016 following the successive attacks that affected the country, the following years are marked by a “catch-up” effect that matches the unrealized potential of the previous years.

Thus, after external constraints phase out, hotel performance does not simply return to previous standards: it catches up with the potential growth that was lost during this period.

Unfortunately, if this observation applies during periods of growth, the reverse should also be true during periods of recession: the rebound to be expected in the immediate aftermath of a crisis due to exogenous factors (in this case, health factors) cannot therefore exceed the potential for activity linked to the state of the economy at that time.

In fact, according to the European Commission, European GDP is expected to fall by -8.3% in 2020, with decreases in the largest countries ranging from -6.3% (Germany) to -11.2% (Italy), compared to 2019.

Knowing that, historically, RevPAR changes tend to be roughly equal to 2.5x the annual GDP growth rates, it can be estimated that in the absence of health constraints or immediately after they are lifted if this were to happen (let’s not lose hope), RevPAR should be between -15% and -30% below its 2019 level. Graph-6

In reality, this will also depend on the timing of this eventual lifting, and especially on the pace of economic recovery. While the latest official forecasts were relatively optimistic for 2021, based in particular on the effects of technical rebounds linked to the resumption of production and the rebuilding of inventories in many sectors, the evolution of the health situation in recent weeks invites us to consider the hypothesis of a later, more gradual and, therefore, more moderate recovery.

In addition, the profiles of hotel performance can also be expected to vary according to the characteristics of the various markets and their sensitivity to crises, which is perfectly illustrated by the history of the last two decades and, more particularly, the extent of the decline recorded during the Great Financial Crisis of 2008-2009.

Indeed, the scale of the decline was much more marked in the Mediterranean countries, due both to the more marked fall in their economies and, above all, to their greater dependence on international tourism, which contracted sharply. In the Benelux countries, where hotel demand is largely based on their role as Europe’s political and economic hubs, variations in hotel activity are not heavily related to their own economies (and thus to their GDP) but to the European economy as a whole. Fluctuations are therefore often more pronounced there than in larger countries, such as Germany or France, where the hotel industry relies proportionally more on internal demand factors.

Looking back, the decline in the hotel industry over the period 2001-2003 also offers some insights. First of all, it occurred during a continued period of economic growth: consequently, when international travel is affected, the hotel industry can unfortunately “decouple” itself from economic fundamentals and underperform during the period when constraints (linked to the consequences of September 11, 2001, and then SARS, particularly on air transport) affect it. Graph-10Graph-11Graph-12

But the resistance of some countries is noteworthy. The countries of Southern Europe were then able to rely on the boom of intra-European demand and a supply boom that only really affected them later on, during the bull cycle and then during the following financial crisis. Graph-8

Additionally, France displayed a remarkable resilience, attributable on the one hand to the traditional strength of its domestic market, but above all – and unlike Germany and the United Kingdom at that time (because these markets have since become more balanced, even if the observation remains true) - to a greater preponderance of its budget and economy hotels relative to its hotel base. This illustrates a dynamic that has been proven once again in recent weeks: the budget and economy ranges are much more resilient in times of crisis, while the upscale & luxury hotel business, more dependent on international clientele, is more volatile.

As a result, the markets, cities and countries where the preponderance of the upscale hotel industry is greatest will be affected more deeply and more lastingly by the crisis. Conversely, “secondary” cities, predominantly domestic resorts and other “Tier-3” cities are well placed to recover.


However, those who hope to see the emergence, particularly in these “prime” destinations and segments, of a market of “distressed assets”, i.e. hotel assets to be bought back “for scrap” after bankruptcy, risk seeing their hopes disappointed: this is what the historical behavior of hotel transaction markets shows.

In Paris, for example, a city that has now been badly affected, although the value of hotel assets per room fell slightly during the last major financial crisis (by around 10% over the 2008-2009 financial years, when RevPAR receded more than 12% in 2009 alone), it was above all the volume of transactions that collapsed, as the market almost froze in 2009 after years of exuberance of 2007-2008. Graph-2

Because of the scarcity of hotel assets and the strong financial strength that investors generally have, they often prefer, in the event of a crisis, to draw on their reserves and wait for better days or at least less unfavorable days for the resale of their assets. In this context, as always in the event of a turnaround, “cash is king”, or more exactly in 2020 “cash burn is king”, i.e. the ability of players to limit their consumption of liquidity through the losses generated by their activity will prove to be decisive. At the same time, in a world saturated with equity and government loans, current owners will prefer to wait and hold on, rather than give in and have to book losses.

After all, “surprises” affecting the hotel market are not always negative, and one clientele can sometimes hide another. Thus, just as the post-September 11 fall in American clientele (down nearly 20% over the 2001-2003 period relative to the peak in 2000) gave way to the previously unexpected explosion of clientele from the BRICs, and, more broadly, from emerging countries (particularly Asian countries, and to a lesser extent Latin American countries), the decline now expected in “traditional” business travel could just as well give way in the medium term to new reasons for staying. Tomorrow’s business travel could indeed be triggered by a need to meet internally when teams are geographically dispersed on a daily basis in a more generalized work from- home environment, or by a “bleisure” stay that would allow employees to extend their stay in a pleasant environment where they can work at certain hours and enjoy the rest of their time.

All this will not prevent the return, when conditions allow, of more traditional customers and especially business events, which will have through this crisis the opportunity to demonstrate their added value in terms of business generated for advertisers, exhibitors and event participants. Given the importance of this segment in the definition of prices by hoteliers, and in advance bookings, which they currently lack in order to “secure” certain levels of occupancy before being able to raise prices, the timing of the resumption of MICE activity will require particular attention. At the end of September 2020, if the first half of 2021 is already part of a dynamic of decline in MICE, this is not yet the case for September and the Fourth Quarter where, on the contrary, the agendas are full of events that have been postponed over the previous months. But the dynamics can change quickly... this is then to be followed.

Furthermore, beyond the horizon of “constraining” factors, the dynamics of international hotel demand remain determined above all by the competitiveness of destinations. Thus, the downward trend in overnight stays by American visitors over the period from 2001 to 2008 occurred in a context where the U.S. dollar rose by nearly 85% between its low in June 2001 (€1 = $0.85) and its high in July 2008 (€1 = $1.58). Graph-9

Together with an 18% increase in eurodenominated ADR, this practically doubled European hotel prices expressed in dollars. In other words, the real tourist purchasing power of Americans, and with them of international customers, had been halved; hence the negative trend observed over this period in terms of arrivals and overnight stays of American visitors.

Conversely, the 2009-2019 increase in hotel rates expressed in euros have been completely painless for the purchasing power of American and international guests, in a context of a decline in the dollar relative to the euro over this period. Graph-7

In this respect, the European situation is more favorable today, as the € price cuts expected in 2020 will bring international prices (in $) down to an unprecedented level and create a world of opportunities, where “bargains” can be available immediately: enough to get the machine up and running again more quickly once air transport resumes. Due to the fact that we live in a world where travel has become, if not a right, then at least a shared aspiration, digital interpersonal experiences cannot always replace human contact, especially if tomorrow’s digitalization is less of a choice and more of an obligation.

For all that, we must keep in mind that it is first and foremost the strong domestic markets that will be the first to recover, after they displayed resilience throughout the crisis thanks to the security mattress formed by their budget & economic hotel industry.

China and the United States are therefore logically particularly well positioned, as within Europe, France, Germany, the United Kingdom and Poland, can be expected to stand at the forefront of a long-awaited recovery. But until then, we will have to be patient and hold on - even if, as an Arab proverb says, “waiting is harder to bear than fire.”

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