With most hotels across Europe being put into hibernation, hoteliers are now shifting from reactive firefighting to be more proactive and look towards the horizon.

The unprecedented decline in tourism is causing a detrimental impact on the hotel sector.  According to the latest update by STR from 2nd April, hotels in Europe are forecasted to record a 37 per cent decline of revenue per available room (RevPAR) in 2020, driven primarily by a drop of 27 per cent in occupancy. A strong rebound is expected in 2021 with RevPAR expected to grow by 41 per cent, but full recovery to 2019 numbers is anticipated only in 2022. Markets with strong domestic visitation are expected to recover first, as local travel is anticipated to be less affected by Government restrictions and border closures.

In terms of impact on European hotels bottom line, it is still difficult to estimate, especially as the most relevant numbers for March are not available yet. However, the recently published report by HotStats with Profit & Loss results of hotels in China gives some hints about what can be expected in Europe. During the peak downturn in February, hotels in China recorded nearly 90 per cent RevPAR decline that translated to over a 216 per cent drop of GOP per available room resulting in USD 27 loss per room per day. In Shanghai and Beijing, the profit deficit was much higher, at around USD 40 per room and day. This would translate to a financial loss of over USD 180,000 per month for a 150-room hotel, before fixed charges such as rent, insurance and property taxes. Considering the higher cost structure of hotels in Europe, especially in terms of payroll, the initial operational losses are likely to be higher.

While the profitability numbers from China show how hard the owners and operators can be impacted, the country also gives some hope for European hotels. Travel data provider ADARA is seeing a rebound in bookings for flights to and within China, that are now at about 30 per cent of the volume that was booked in early January. Also, the latest data from STR shows the escalating recovery of the hotel market in China, with some 89 per cent of hotels being open again. An important trend is that while it took 4 weeks for average hotel occupancy level to increase from 10 per cent to 20 per cent, it took just 2 weeks to rise to 30 per cent. Some sub-markets, such as midscale & economy hotels in Chengdu, are already running at about 50 per cent occupancy. Europe is about a month behind China thus based on the China experience, STR predicts that things may start to turn around in May or June.

While the hotel sector has probably reached the bottom in performance terms, the good news is that the sector is about to start a new growth cycle, and this will provide a wealth of opportunities for those who are agile and prepared.

Opinion piece by Borivoj Vokrinek, Partner, Strategic Advisory & Head of Hospitality Research EMEA at Cushman & Wakefield