The state of the Viennese tourism industry can be described as complete write-off, with a 98,2% decrease in overnights in April. Frans-Jan Soede, CEO and founder of HAM independent hospitality and tourism advisors gives his prognoses on a post-corona tourism industry.
The German version of this article was originally published in the ImmoFokus Magazine. Interview conducted by Amelie Miller. Text, pictures and copyright by Real Estate Media Group / Katharina Schiffl.
AM: How can large cities achieve an acceptable level of hotel occupancy by 2021?
FJS: Lodging facilities do not exist in a vacuum. Hotels and hostels are depending on the activity levels of other industries to achieve their occupancies and in turn keep their costs in check. One of these industries is the travel industry, more specifically the airline industry which plays a crucial role on a national, international and global level. Another key impact on lodging facilities is the health of local tourism facilities at individual destinations.
In order for a hotel to survive on the longer run, it needs to achieve at least 50% annual occupancy. With the current overcapacity, it is expected that many hotels will have to close. Additional to the existing supply, there is a massive pipeline of new projects. In Austria alone, there are 94 hotels in planning.
Going forward, the question of how we can use hotels for an alternative use will be more central, because the currently existing capacity will not be needed for a long time.
Hotels may very well be converted and used as micro-living or senior-living concepts. 25hours hotels for instance, have initiated promotions to attract long-stay guests and rented their rooms as offices during the lockdown. Achat Hotels for instance, transformed 10% of their rooms in selected destinations. Given the last indications, they are planning to keep this constellation going forward.
Another question was, whether hotels could be used for medical purposes. During the first half of the year we saw hotels in California and France being converted to hospitals and providing the extra capacity of beds needed during the pandemic.
AM: According to a survey by the Gallup Institute, the current crisis has a noticeable effect on Austrian. Carinthia, Salzburg and Styria are popular holiday destinations. Is there a risk of a 50% or larger drop in these destinations?
FJS: I see a great opportunity for local tourism ahead. Following relaxation of travel restrictions, it is expected that people will start to travel. In the first period local and regional travel is likely to pick up, while longer-distance travel will be subject to the evolution of the crisis. The keywords in the coming period will be accessibility and security. Precisely for this reason, leisure and holiday destinations are in a good position to profit from the changes. Seasonal domestic and regional travel is likely to experience a renaissance in the summer. There are a number of well-positioned and resorts in neighbouring countries, such as Hungary, Slovakia and Czechia.
AM: Austrian Hotels are allowed to resume operations on May 29. For the time being, demand seems to be low. How do you see the development of (inter)national source markets? How do you think these will impact the lodging industry?
FJS: We are expecting the following evolution in international travel markets: We are estimating a 75% slump in Europe, including CEE countries. Traveller numbers are likely to increase year by year, but we do not expect to be able to talk about a new normal until 2024. We think that in 2021, Europe might mitigate the losses to 60% (without MEA and Asia Pacific markets, that is). 2022 will likely bring about a recovery in the Asia Pacific travel markets, with the reduction compared to previous numbers around 45%. 2023 may bring about the opening of North and South American markets, moving Europe to 35% below the 2019 numbers. By 2024 the level is likely to be around 15% below 2019 numbers, which would be the new baseline or the new normal if you will.
At the moment, demand is not large enough to justify the reopening of certain hotels. Rationally seen, only properties with strong liquidity and a good market position can afford to open their gates once again.
AM: The crisis shed light on the importance of digitisation. Guests in Germany, for instance can register using a digital registration-slip system. How can digitisation support better communication about the health and safety of guests and employees in daily hotel operations?
FJS: Digitisation is a must. What began with contactless check-in and check-out can now be applied to hygiene standards. It is important to strengthen direct sales. Communication with guests before, during and after the stay will become increasingly important. Apart from building guest-confidence, such procedures can save time and money. The possibility to implement digital check-in has the potential to save around 100 million Euros annually in Austria alone.
AM: The Austrian tourism agency has started a campaign promoting domestic tourism. Which hotel and tourism concepts will work well in the future and which will not?
FJS: In general, group travel will suffer. This is mostly due to the fact that hygiene standards and social distancing are difficult to maintain with larger groups. What will definitely work well in the future are clear-cut budget concepts, such as B&B Hotels, Ibis and various branded hostels with private units. High-end luxury is also likely to recover and stay interesting for guests and investors alike. Online platforms are also reinventing themselves. TUI and booking, for instance have established cooperations with tour operators and offer various activities and excursions.
AM: Low occupancy, serious financial losses. What could the long-term restructuring of financing and lease and rental agreements look like?
FJS: Communication is key here. All stakeholders, including the operator, investor, developer and creditors, must think realistically and pragmatically. They need to communicate regularly and discuss the progression of bookings and the market conditions in order to slowly but surely move toward a new normal.
AM: 2019 saw 1,25 billion Euros change hands in hotel transactions. In Austria today, 94 hotels are in planning. What will happen to current and future developments?
FJS: Hotels in construction will be finished. There will most probably be projects in the planning phase which will be cancelled or suspended. Decisions will depend on the priorities, liquidity of the stakeholders as well as on the volatility of the market.
AM: What does a Covid-19 conform hotel operation look like after the re-opening? Are these standards sustainable on the long run?
FJS: Hotels and hotel groups took this question seriously and heightened the hygiene standards. Many of them established cooperations with external hygienic partners to ensure the level of standards and to minimise costs. Some labels have been created in order to provide guests with a higher sense of safety, such as “Clean IHG Promise” by Intercontinental and “Clean Stay” by Hilton. Falkensteiner developed new hygiene standards with Diversey for their spa and wellness areas.
AM: How big was the impact of the crisis on operators? How can they react?
FJS: Operators were probably impacted the most, as they are highly dependent on the economic situation and activities by other industries. However, they can also be the problem-solver, as apart from having full control over operations they are the ones directly connected to the tourism industry. If operators are lacking resources, external advisors or asset managers can provide assistance.
AM: From a developer’s point of view, which market-specific scenarios are likely for 2020 and 2021 openings – especially in CEE?
A wave of consolidation is expected, and many projects will be put on hold. In CEE, the over-capacity of beds in Budapest, Prague and Bratislava will pose a formidable challenge. Vienna, Salzburg and other Western European cities will likely recover quicker. In Easter Europe, the recovery of business tourism is an important one. Hotels as an asset class will likely to lose wide-range popularity for some time but due to the expected consolidation, it will still provide higher yields compared to other asset classes.
The tourism and hospitality industry is a resilient one. Covid-19 will not be the end of travel. Mankind’s desire for global discovery will further drive the industry.