Yann Caillère, CEO of the Pierre & Vacances Center Parcs Group and Frédéric Le Guen, Chairman of Belambra Clubs share their experiences and visions of the sector in this time of lockdown. A discussion with Vanguélis Panayotis, CEO MKG Consulting. [Video in French]

What is the outcome of the landing of your activities and what is the outlook for the summer season?

Yann Caillère: We're getting ready. We don't know what or when. We are working on different scenarios for our different products.

For the Pierre et Vacances product, it will be easier because they are private apartments. [...] For the Center Parcs product, it is more complicated, especially with the Aqua Mundo offer. We don't know in any form whether we will be able to reopen it. We are benefiting from the experience gained from the gradual closure. We were allowed to accommodate 1,000 people, then 500, then 100, each time we adapted. We managed to adapt both the catering offer and the experience in the pool. The big difference we are sure of now, is that the sanitary standards are going to change enormously. They will be even stricter than before. This is expected by our teams and our customers.

We would like to know the takeover date. We are just thinking that there could be a gradual recovery in June. We would have to return to almost normal activity at least in July and August. Of course, there would be some setbacks, but that we could get off to a good start.

We started interviewing our customers, to understand what their state of mind was and what level of expectation they had. […]

Frédéric le Guen you also have a seasonal activity winter summer. The winter season has been cut, how do you see the prospect of summer?

Frédéric le Guen: we closed the winter season in a bit of a hurry, we evacuated more than 1,000 employees and 5,000 customers in three days. I would like to stress that everything went well both on the client side and thanks to the great involvement of our employees. They made it possible for the closure to go as smoothly as possible with such a high level of urgency and under quite unexpected conditions.

Our winter season was off to a good start, but unfortunately it ended well before the end. We have about 25% of the season that has not been completed.In a sector where margins are as low as ours, if we don't bring in 25% of sales it's obvious that we won't achieve profitability for the season.

Concerning the outlook for the summer, we know that it will be difficult with a lot of uncertainty. The first uncertainty is the reopening date. We understand that it takes time, that there are protocols to be put in place for deconfinement. We have real confidence in the authorities, but what would help the professionals is not to open as soon as possible but to know when we will open. [...] There is obviously an inertia of reservations, which is normal given that clients need to project themselves.

It is important to control this reopening, and we understand that all the answers do not yet exist.In a sector where margins are as low as ours, if we don't bring in 25% of sales it's obvious that we won't achieve profitability for the season.

Concerning the outlook for the summer, we know that it will be difficult with a lot of uncertainty. The first uncertainty is the reopening date. We understand that it takes time, that there are protocols to be put in place for deconfinement. We have real confidence in the authorities, but what would help the professionals is not to open as soon as possible but to know when we will open. [...] There is obviously an inertia of reservations, which is normal given that clients need to project themselves.

It is a question of controlling this reopening, and we understand that all the answers do not yet exist.  However, it is important to be able to project oneself quickly.

There is, of course, a reflection on standards of openness and new protocols. We know how to adapt and we will know how to adapt.A lot of teaching is needed, villages and holiday clubs are used to setting very demanding standards [...] We know how to mobilise resources, we have the possibility of ensuring the physical safety, in the broadest sense, of our clients, we have staff who are extremely well trained. We are trained in many protocols, adding extra gestures is quite simple because we have the necessary staff. It's more a matter of adapting existing protocols rather than creating them from scratch. We are recognized partners of the health authorities on these subjects. We know how to operate in an environment of trials and even constraints. In holiday clubs, we also have infrastructures that allow us to respect barrier procedures.

Large spaces, open air, we can also deport restaurants to respect distances. We also know our clients and our employees fairly well. We therefore have the capacity to evacuate them quickly if necessary. […]

We need to be able to project ourselves in order to restart a booking cycle, for both customers and employees. We also need pedagogy to remind people that we will be able to operate in even stricter sanitary conditions than those we used to respect before.

Communication, both internally and with the public, will be one of the major challenges. You have a French domestic market exposure for the most part. Do you notice that your French customers are starting to enquire about their holidays?

Yann Caillère: It's true that we are in a domestic market for 80 to 90% of our customers.  That's why we're going to enter a critical phase for us because this is the moment when we start to collect bookings for July and August. To date, we have a booking delay of 10 to 12% for the month of August. This is all in all quite moderate. On the other hand, reservations are usually made in this period. Not having visibility at the moment is very problematic. 78% of Maeva customers say they are going on holiday but they are waiting to find out the rules that the different governments will impose in order to be able to book. As a result, from the moment we know that they are willing to go on holiday, we are obliged to put in place extremely flexible offers, including advance payments. [...] As soon as we have better visibility on the recovery, we will know what the real trend is. The trend will remain domestic in all European countries.

The destination that we are planning that is likely to suffer the most is Spain. Indeed, our Spanish residences are filled by foreign tourists.

Frédéric le Guen: There are practically no new bookings. The season was looking good but nothing has changed since March 15th. We are confident that the French will want to go on holiday. But you need a date to be able to plan ahead and start booking. Today, we don't deal with reservations, we only deal with questions that we often don't know how to answer. […]

Our greatest expectation is to gain visibility before we even know a takeover date.

Concerning the health protocols, what about the costs of training and setting up equipment? This will both increase operating costs and create friction in the execution of the service. Can you put a figure on all these costs that are linked to the world of tomorrow?

Frédéric le Guen: Today, we have a few axes but no precise figures. These are additional costs. We are going to clean the common areas much more often, we are going to disinfect certain areas even more often, we are going to extend the opening hours of the restaurants to limit the number of people present. Compared to the costs that we have today and that we have such difficulty cutting, my priority is rather to work on the fixed costs that we have today. These are, for example, rents, which weigh very heavily, 25% of turnover.

These health costs, which are imposed on us, are also a question of responsibility for our employees and our customers.

What we have to do with it, we will do with it. What is more difficult is to have significant and fixed costs with a turnover of zero.

The big issue is not so much about the equipment we buy, I wonder how we are going to procure it. For me, it's more a question of supply than of cost. The cost issue is the variability of fixed costs. Rents, taxes, including local taxes... We have obviously put a large part of our staff on short-time working. There are still a lot of them working, and I thank them for that, but it is true that they work a lot to make cancellations.

The response from the public authorities has been very strong. That is to be commended. We are listened very carefully with a great deal of pragmatism. [...] We must continue to work on the variabilisation of charges. It should be zero if we are closed and then depending on the activity.

Yann Caillère: Although we are closed, in each of the residences we have costs. For example, maintenance and security staff. What you have to bear in mind is that these costs don't only apply during periods of closure. We will have a ramp-up period that is not going to be limited to 3/4 months. We're off on an adventure that's going to last quite a while, before we get back to our reflexes and our normal activity. Until we find the vaccine, we'll have the risks associated with the virus. [...] What would be terrible for everyone would be if we got a second wave. The ramp-up period will drag on, we won't get off to a flying start. If we are not able to adapt a large part of our moves to this ramp up, it will be deadly. We'll also have extra costs. We're estimating around 5 million every quarter. [...] Our responsibility is the customers of course, but also the staff. [...] What seemed to be a normal life in a company or institution is becoming a headache. We have redone all the customer journey, all the points of contact that we will have with the customer. Either by trying to avoid them as much as possible, digital helps us a lot. […]

Our sector accounts for 8% of GDP, it is a locomotive and an industrial flagship, we have a form of leadership at European level. What are your concerns about the investment cycle, to renew products and adapt them to changing customer expectations?

Frédéric le Guen: This is a major issue. We are an industry with very high CAPEX, long lead times and very low margins. In addition, this industry is in the process of making losses and taking on a lot of debt in order to hold on and survive. So there's obviously going to be a huge slowdown in investment if nothing is done. Very often, the operators' net profit is 2 or 3%. [...] If we had to pay six months' rent during this period, the whole company would have to work for five years just to pay back the six months' rent. [...] So it's a real issue in the short term and in the long term. [...] We will also have to work on demand. We have thought about some proposals. For example, we can imagine a return of VAT applied to our businesses next year. It is easy to imagine that the purchasing power of the French will not be the same. For the supply side, we need to find a way to maintain investments. We have three major projects that are at a standstill. Not to mention the existing one and its upgrading. To continue to open up, to continue to operate to international standards, you need money, a lot of money. It was already difficult in our sector because it is very seasonal. [...] We have to find mechanisms that will reduce the expected rates of return. It will require a major policy from the government or its institutions. We're thinking of the BPI or the Caisse des Dépôts, which have an absolutely decisive role to play over the next three or four years to ensure that the investment continues.

Yann Caillère: We're all going to come out of this episode rinsed out. Whether as individuals or companies. The question for all of us initially will be how to reconstitute our cash. The costs will be reviewed at the very least, the CAPEX will be reviewed. There's one point we have to be very careful about, and that is that the industry must not get into a price war. [...] We are going to review our operating methods. Digital technology will make it possible to simplify all reception procedures as much as possible. There will be arbitration on the "must have" versus the "nice to have". [...] Everyone will do this, the economy will recover very slowly.

We are not in the business of very upscale products, which depend above all on an international clientele. They are going to suffer a lot. [...] Everything in the MICE business will also be terribly impacted. [...] We had a first stage which was a sanitary stage, we are now approaching a sanitary and economic stage, we will tackle the economic one afterwards.

The government reacted very quickly and aggressively. The second stage, we must not imagine that as soon as the crisis is over, the crisis is behind us.For the record, after the Gulf war in the 1990s, it took us seven years to recover Mercure's RevPAR. For the record, the gulf war in the 1990s, it took us seven years to recover Mercury's RevPAR. After September 11, it took the American hotel industry almost eight years to recover its RevPAR levels.  ...] We cannot say that we entered a war and not set up a post-war economy. [...] The unique thing about our industry is that the product that isn't sold today, I couldn't sell tomorrow. All the days lost are definitely lost. [...] At the moment, we have zero turnover. The doubt that sets in for us, also sets in for our teams. It's extremely stressful. There is a category of people who are overloaded, there are those who are inactive and waiting. We are in a general anxiety-provoking environment.

Frédéric le Guen: It's also hard for us. The holiday village teams love people deeply. That's why they do this job. [...] Their emotions are deeply affected. They are people who work with their guts, who take their energy from the connection with people. It's a profoundly terrible feeling for them. We try to keep in touch with them as much as possible and give them courage. We have done solidarity actions, which is important to them. It was also important to us as a company. [...] For any stay that will be booked for this summer, a portion will be donated to the Fondation des Hôpitaux de France. […]

Yann Caillère: They have stress related to their professional activity, but also personal stress. Some in our teams have had the Corona virus, everyone today knows someone who has it. [...] Today we feel a real desire to help each other. People are in the starting blocks. A lot of people are fulfilling themselves through their work.