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COVID-19: Impact of coronavirus on the hotel and leisure market

​With two million confirmed cases of coronavirus affecting the world's population, governments across the globe have implemented strict social distancing measures to help reduce the spread of the disease. ​Similarly, governments have mandated that all citizens should cancel all non-essential travel at the current time.

While all sectors of the world's economy are affected by the coronavirus outbreak, the hotel, leisure, retail and travel industries have been hit particularly hard.
 
Since December 2019, the outbreak of the COVID-19 coronavirus has had a devastating impact on the world economy. Fitch, the credit rating agency, predicts that there will be a deep global recession. It anticipates that global economic activity will decline by 1.9 per cent, with the U.S., Eurozone and UK down 3.3 per cent, 4.2 per cent and 3.9 per cent respectively. 

Reports suggest that China could be facing its worst financial crash for 60 years, with its gross domestic product (GDP) reducing by 10 per cent. Over the last four weeks, the U.S. has suffered in excess of 22 million job losses, the equivalent of over 10 per cent of the nation's workforce.

With two million confirmed cases of coronavirus affecting the world's population, governments across the globe have implemented strict measures to help reduce the spread of the disease. Those measures include steps to reduce social contact with bars, restaurants, hotels, cinemas, theatres, gyms and other leisure facilities being required to close.

In April 2020, Ursula von der Leyen, the European Commission President, said, "I would advise everyone to wait before making holiday plans. We will need to learn to live with this virus for many months, probably until next year."

At the recent Bench Event's Hospitality Tomorrow virtual conference, a number of experts shared their views on the immediate future for the hospitality and travel industry.

Several speakers indicated the market already faced a challenging environment before the coronavirus outbreak began in earnest.

Paul Slattery of hospitality consultants Otus & Co Ltd, said that the hotel and leisure industry has been facing multiple issues in recent years, including the credit crisis, a prolonged period of low interest rates and wage stagnation, as well as Brexit. Robin Rossmann of research firm STR, noted that even prior to the COVID-19 lockdown, hotel occupancy across the globe had started to slow in January 2020, due to hotel room supply outstripping demand in the U.S., Middle East, Asia and South America.

As the outbreak took hold, the air travel market lost nearly 40 per cent of its travellers worldwide according to Olivier Jager of travel analysts ForwardKeys.

"There was a reduction in air travel by 50 per cent in Asia (including 63 per cent in North East Asia), 36 per cent in Europe, 30 per cent in Africa and the Middle East and 26 per cent in the US. Taking account of cancellations the number of international flights booked worldwide had dropped by 80 per cent during the week of 16 March 2020," he said.

The numbers are simply staggering. The hospitality and travel sector has never experienced anything like this shut-down. The impact is being felt by lenders, investors, owners, operators, employees and the sector's supply chain as well as in adjacent sectors, like the events industry.

The combined effect of the travel restrictions and government guidance on social distancing has resulted in the postponement or cancellation of many high profile events including the Mobile World Congress in Barcelona, the International Hotel Investment Forum in Berlin and MIPIM in Cannes among others. These events, and others, bring thousands of exhibitors and attendees to the host cities occupying hotels and contributing revenue to restaurants, bars and other venues.

Travel and hospitality, like other sectors, will recover, but what will that recovery look like?

Many commentators suggest that 'normal' life in a post-coronavirus environment will not resume until a vaccine for the virus is developed and widely distributed. The pharmaceutical industry has already indicated this may take up to 18 months. That has major implications for the hospitality and travel sector.

The Organisation for Economic Co-operation and Development (OECD) anticipates that there will be a two per cent reduction in global GDP for every month of country lockdown and this would further delay the revival of the hotel and leisure market.

A very stark example of what the sector currently faces, is a decision that the industry in one of the busiest tourist 'hotspots' will have to make very soon.

It may not be economically viable for Mediterranean hotels to open for the 2020 holiday season. Taking into account the hiring and training up of staff, the government rules around paying employees for a period of at least six months' work in a year and the rapidly approaching financial "break-even" date for Mediterranean hotels. Many operators will have to decide very soon if it is viable to open at all for 2020 and they may mothball their properties until April 2021. This is likely to have a big impact on the GDP of the Mediterranean region.

As indicated earlier, there will be a point of recovery for the sector, and Governments can help with the recovery of the market by introducing measures that encourage the renewal of tourism initiatives. The business and personal leisure travel market will return only once both employers and individuals feel that it is safe to do so again from a health perspective.

As the global lockdown concludes, people will be less interested in spending money on material possessions and instead are likely to spend on holidays, travel and experiences.  The medium term prospects of the hotel and leisure sector are therefore, good.
 

Alex Campbell is a Partner in Fieldfisher's Financial Markets and Products Group in London.  Alex specialises in real estate finance in the hotel and leisure sector.  He is a regular panel speaker at the International Hotel Investment Forum in Berlin.

Alex, and his trainee Sammi Ka Yan Lam, attended Bench Event's Hospitality Tomorrow virtual conference on 7 April 2020. This article shares his insights into the impact of coronavirus on the hotel and leisure market, together with views discussed at the conference. 
 
 

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