Impact of COVID-19 on European Hospitality

The European lockdown is over

Now it's time to assess the impact of the coronavirus epidemic on the European hotel industry. What territories and properties have exhibited the best resistance to the shock? And what are the prospects of remission, which are slowly becoming apparent?

Over the 50 years, Statista reports that major viral outbreaks like H1N1 in 2009, Ebola (1976), SARS (severe respiratory syndrome) in 2002, H7N9 in 2013, COVID-19 have caused tangible shocks around the globe. These outbreaks had a huge impact on the hospitality industry in affected countries.

Although 2020 seemed so distant, the beginning of 2020 was encouraging... however, the entire European hotel industry found itself in a bind in February after Italy's 12% RevPAR drop.

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March's first fortnight allowed hoteliers to partially limit the damage suffered throughout the month. This was especially true in the northern half of Europe (-62.9% RevPAR in Germany compared with Italy's -92.3%) and the United Kingdom, which had a later schedule for entering and exiting the state-of-health emergency than its continental neighbors.

Covid 19

The entire European hotel industry went red in April. This was because the blood vessels that normally feed it (transport, business travel, and leisure stays, events and catering) stopped functioning properly. The entire industry was put into an artificial coma when it stopped functioning normally.

The public authorities then implemented a variety of support measures to address the emergency. These included short-term working, EMPs and tax deferrals. The public authorities then put in place support measures for the short-term (short time working, EMPs, tax deferrals, etc.) and long-term (investment assistance, capital contributions, etc. To create the conditions that allow the sector to get on its feet again after the end of the health crisis.

This was not the case at the start of May. As can be seen, RevPAR trends were below -90% for the first 25 days. This is because the initial stages of the end-of-lockdown were marked with strong restrictions on transport, especially long-distance transport.

In exceptional cases, however, there are exceptional indicators. The recent changes in the European hotel industry's health are now measured by pulses that are often barely perceptible. These pulses measure the variation in rooms for sale. This is a reflection of the percentage of hotels available for reservation and guest stays. Even though national conditions are still very different, this electrocardiogram indicates a noticeable improvement since May's beginning.

The Netherlands and Germany are leading the recovery efforts. Nearly 60% of normal room availability was reopened by May's end.

Southern Europe has been largely in a rut due to its dependence on international customers, which is why it has remained at a standstill. Between the two, and despite the early end to the lockdown (4 May), Belgium continues to be heavily penalized for its dependence on foreign customers and slow business events. France has, on its part, put rooms back onto the market after its official reopening (on April 11th), but it is still behind Germany and the Netherlands, especially, which are playing a major role in the post-Covid-19 recovery.

France, however, could be one of the most resilient European markets over the next year due to its performance at the start of 2020 and slightly better than expected recovery in demand from the hotels that reopened at May's end. This is why? This is why there has been a significant shift in RevPAR since the start of the year.

From a hotel perspective, those countries that are less affected by the outbreak, such as Poland and Greece, Hungary, or Austria, are more affected than those that were hit the hardest by the crisis like France or the United Kingdom. It is important to note that the UK's provisional assessment should be viewed with hindsight due to the delays in the epidemic’s timing in comparison to its continental neighbors. However, Italy's income statement from 25 May seems disproportionately negative (-70%). This is due to the traditional importance and earlier end of emergency medical measures that should allow it to accelerate its catch-up over the remaining seven months.

Germany's strong domestic market (more than 8 out of 10 overnight stays), as well as its management of the crisis in health, should be a major source of support for the recovery phase over the next weeks and months. France's unique structure and geography of its hotel supply is a major advantage. Even during the worst of the epidemic, budget hotels were still open, welcoming those who were at the frontline of the battle against the epidemic (healthcare workers as well as truck drivers and people with low housing). More than half of France's budget and economic supply have reopened their doors since the official end of the lockdown, which was on 11 May. However, luxury and upscale hotels have not resumed their service due to being more dependent on international demand.

These category dynamics are not the only ones. There are also geographic dynamics. In France, the Paris hotel market is largely closed. It is focused more on high-pax hotels that host MICE guests or boutique hotels that attract long-haul leisure travelers. Hotels in Paris' suburbs and other French regions are reopening more often than usual because they are more focused on domestic and economic customers and/or segments.

The dynamics that are observed at the European level between countries also apply to sub-national geographic areas. The recession that caused the epidemic is particularly severe for hotel markets in Brussels, Cannes and Venice, Birmingham, and Hanover. However, areas that are more focused on their home market, like Languedoc, Ardennes, Lake Constance, or the Baltic Sea Coast, are more resilient. It is worth looking back at the lessons learned from the past to improve hotel resilience. Take 2003, which was marked by the SARS outbreak and a negative European economic environment. It is a good example.

France was able to benefit from the early recovery, and above all from a less severe decline in RevPAR over a full year and during months of recession due to the higher rates charged. France's average price had increased slightly to cushion the fall in occupancy. However, fares in other European nations fell sharply due to the decline of OR.

The nature of the crisis at that time was quite different. It wasn't brutal but it was slow and sustained. This began in 2001 with the stock-market crisis in technology stocks. These stocks were then called "dotcom". (A sign of times, these same technology stock, however, resisted and even benefited economically from the Covid-19 crises). This was due to the continued decline in international tourist following the September 11th attacks.

Although the SARS epidemic had had a limited effect in the West, it was only the last jolt before a massive rebound in the hotel industry that occurred between 2004 and 2007. The US subprime mortgage crisis and its subsequent extension in Europe by the sovereign credit crisis had already brought to light the fragility and vulnerability of the Southern European hotel market. France and Germany showed their resilience while the United Kingdom rebounded faster and more sustainably than any other country.

It is important to remember that, with the notable exceptions of France and Belgium, and to a lesser degree Italy, due to its extraordinary calendar of events in 2015 and 2016, the rest of Europe and the entire European hotel industry was on an upward trend for more than a decade, up until 2019. Despite the fact that the fire caused extensive damage and has yet to be contained, the Covid-19 epidemic was the catalyst for an expected downturn.

When a patient's body temperature rises, their immune defense mechanisms kick in. Italy was, for instance, in a much more difficult position than its peers before the Covid-19 crisis. In fact, the RevPAR for the Italian hotel industry was only at 2000 levels by the end of 2019.

These two "lost decades” of hotel deflation will likely weigh on the balance, at a moment when Italian hotels will need to refinance to deal with the recent loss of business. Some international investors could be interested in the Boot, which has been attracting attention in recent months.

This analysis has been written up to June 1st with data from May 25th, 2020.