Published 5 months ago · Updated 4 months ago
Mallorca participated virtual hotel investment summit
Organised by Bench Events About 5000 participants attended throughout the day.
Generally, participants humbly admitted in one form or the other that this is a new situation and nobody really knows, at this point, how this will unfold for the hospitality industry in the long term. Here are however some interesting takes from this event:
- Generally speaking globally, the hospitality business is down 80% in March 2020 vs March 2019 according to STR Global and aviation passenger traffic is down 77% globally according to Forwardkeys.
- This has caused a lot of hotel business to simply shut down (over 15% globally to date but more to come). Owners that can afford it are fast-tracking renovations and upgrades that they had planned for the coming months.
- As an indicator, currently, Hubei/Wuhan is seeing 40 % occupancies after re-opening, not enough to be profitable but given that large sources markets like Beijing and Shanghai remain under lockdown this is encouraging.
- As a rule of thumbs, Horwarth advised that economists estimate that 1 month of lockdown equates to 3 points of GDP drop for the year for a country. Given the average expected lockdown of 2 months, we are looking at a 6 % drop in a typical country. But this is only the direct impact of Covid-19. Looking at the asset bubble that was there even before the Covid-19 leads many analysts to predict at total average 20% drop in GDP the developed economies for 2020-21, some even go beyond, putting us in a situation comparable to 2008 if not worst.
- Translated to hotel performance, normally a 1% drop in GDP should equate to a 4-5 % drop in revenue per room. For the 2020 period, we are therefore looking at a 25-30% drop in revenue on average for a hotel that does not close and at least 40% for a hotel that has closed and reopened.
- Recovery in the West will come first from the individual tourist segment that had to postpone their holidays and are keen to get out after months of confinement (a study shows 65% of confined people said they will travel soon after confinement is lifted. This may start happening as soon as September 2020 but trips will likely remain within the same country initially.
- Business travel is not expected to pick up significantly before Q2 2021 and group travel is likely to only come back in summer 2021 when all airlines and borders are opened and better treatment is available for Covid-19.
- Drawing comparisons on September 11, 2008 recession and SARS leads experts to believe that we will have to wait until 2022 for hospitality occupancy levels to come-back to the 2019 levels with owners investment returns probably lagging one to 2 years behind
- Professionals have no choice but to acknowledge that post Covid-19 there will be a. lot of change in working environment and they need to figure out how to adapt
So what this means?
- Governments are expected to play a big role in sustaining businesses to avoid a complete collapse.
- Hotel Owners need to sit down with operators and make the necessary efforts to keep their business alive, biting the bullet whenever necessary for as long as possible.
- An owner without the financial capability to bare losses for the next 2 years may be best advised to sell assets early before distress sellers create a bulge of properties for sale and reduce values further.
- The luxury sector is likely to be the most impacted as the coming economic downturn will make people more price-conscious.
- If you choose to travel when things pick up, expect highly discounted flights, take advantage of it.
- Confinement will boost the work from home business model. Apart from every business needing to improve digitalization and remote communication capability, all should look for opportunities to deliver new services to people’s homes. Figure out pain points hospitality professionals are best positioned to address.
- When things pick up hoteliers will have to focus first on attracting resident of their own country and show that they have all put all it takes for guests to feel safe.
- Staycation will have a complete new meaning as hotels will have to open up a lot more to attract and cater to their local communities in their city.
How do we get out of this as individuals ?
Paul Stoltz, who has developed the concept of Adversity Quotient recommends taking the following steps summarized in his CORE strategy:
- C- Control: Focus on facets of the situation you can only control.
- O- Ownership: Figure out areas where you can best step up in these situations. What can you best leverage from your background, experience and resources, this taking ownership of your future.
- R- Reach: a)Take measures to contain the fall out of the situation and b) figure out where the upside is going to come from thus maximizing your reach.E- Endurance. Start taking actions now to be the first to implement ideas and be ahead of others when things pick up. Put in place processes now that will make your changes sustainable for the long term.