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STR: Prepare For Bounce Back In 2021

Yesterday’s STR webinar on Europe’s hotel weekly performance analysis, Robin Rossmann and executives from Tourism Economics remained confident that the current crisis will transpire into a ‘V’ shaped recovery, with a tourism bounce back by next year.

The overriding message was that this current downturn might not actually be as long-lasting as the 2008 Global Economic Crisis. Rather, pick-up will come quicker and sharper. Good news for hoteliers during these dark times.

However, hoteliers should expect changes in class performance and source markets as we pull out of this crisis.

Class Performance

Studying the US RevPAR % change slide in week ending March 28, STR reported that the luxury class had seen the greatest declines at -93.3%, while midscale hotels had seen slippage of -67.1% and the economy segment had seen drops of 54.8%

According to Robin Rossmann, Managing Director of STR, declines in RevPAR will be accentuated towards the top end with the luxury class most affected. Discussing the data, Rossmann said that the economy sector had been somewhat protected, stating that we will see that also in the recovery cycle.

Following China

China is fast becoming the benchmark for recovery. In total, 40-50% of hotels closed for a two-month period, with 88% of STR sample hotels now back in operation.

Analysing the behaviour of China’s return, the domestic market has proved key. The submarket of Sanya, which is often referred to as the Hawaii of China, was the last submarket to decline, thanks to its popularity as a domestic tourism hot spot.

Week ending 28 March, occupancies in China remained at between 20-30%, with some differences between submarkets. For example, Shenzhen, which is a hub for migratory workers, has struggled to come back. Whereas, Sanya is enjoying spikes at weekends as the domestic leisure market returns.

“People have been cooped up for two months. As soon as they can leave and if they can afford it they are getting out,” Rossmann explained. Chengdu has recovered faster thanks to its manufacturing base.

Performance has varied according to hotel classification. “Mid-scale and economy hotels have significantly outperformed the rest of the market. Those hotels that are city centre and towards the top end of the market are finding it more difficult to recover,” Rossmann said.

Continuing the positive news from China, Rossmann announced that the first big event is now set to take place 21-23 May. The China Food & Drinks Fair had been scheduled for 26-28 March. While the event is expected to see less demand that previous years it’s a positive indication that recovery is underway.

“This gives us something to look forward to in the rest of the world. Once the virus is under control it takes another two months for major events to start coming back,” Rossmann pointed out.  

Forecasting ahead

David Goodger, Managing Director, Europe and Middle East for Tourism Economics, provided a cautious but positive forecast, stating that Tourism Economics was not expecting the Covid-19 fallout to be anything like the Global Financial Crisis, rather the expectation is for a short recession.

However, he did state that travel will fall more sharply than GDP in Europe for the year. Annual growth rate for tourist arrivals is estimated at -40% for the year. However, both GDP and tourist arrivals are expected to enter into positive growth patterns by 2021.

Looking at 2020 inbound markets for Europe by origin market, China is expected to see the greatest declined at -50%, followed by the US at -45%, Western Europe at -41% and both Northern and Southern Europe at -40%. This against a global average of -39%. Central and Eastern European inbound arrivals are expected to see the least decline at -35%.

In terms of visitor numbers, inbound tourism to Europe from Western Europe will see the largest decline at a drop of 93 million, the Americas will drop by 23 million and Asia Pacific will drop by 19 million.

Domestic tourism will lead the recovery. Goodger cited WTTC research which stated that two thirds of travel spend in Europe is from the domestic market. Even in Spain it makes up half of tourism spend.

“Domestic travel is much less volatile. We saw less of a fall in the domestic market in 2008 downturn, and it recovered much quicker. This is something we do expect to happen in recovery in these instances,” he told the webinar audience.

Tourism Economics expects domestic recovery to come ahead of the international market and to regain prior-2019 levels by 2021 and 2022.

Forecast Assumptions

Natalie Weisz, Senior Manager of Research & Analysis, STR, informed the audience to expect eight months of negative impact with four months of severe impact. She said the majority of markets forecasted almost no demand in April and May. She also expects no new hotel openings in H1 2020, with many opening dates now pushed back by six months. However, echoing what Goodger had presented, Weisz also said she expects the majority of pick-up will come from domestic demand.

Looking ahead to recovery, Weisz showed that Tourism Economics forecasts a 33% include in occupancy, 6% increase in ADR and 41% increase in RevPAR for Europe in 2021. That coming off the back of a 27% decline in occupancy, 14% slide in ADR and 37% drop in RevPAR for 2020 as a whole.

Conclusion

Summing up, Rossmann returned to provide three conclusions: 

1. China points towards shape of recovery in the rest of the world

Recovery starting even though there are still cases

Domestic demand driving both leisure (first) then business demand

Midscale and economy recovering faster

2. We are forecasting a bounce back

Impact on global economy still uncertain but we are forecasting a bounce back

Much still depends on how fast virus is contained, and government intervention

Current forecast in Europe RevPAR returned to 2019 levels in 2022

3. Profitability recovery profiles are different to revenue

Likely to take longer to recover at a profitability level

Recovery also likely to be very different based on extent occupancy or rate driven

Profiles will differ by market and hotel type


Tune in to the next STR webinar update here


 

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