Hotels in the UK could take four years until business recovers to pre Covid-19 levels. That’s the stark warning from consultants PwC, in their latest annual review of the British market.
In predicting a likely average occupancy of 55% for 2021, the forecast draws on an expectation that a vaccine against Covid-19 will be available during 2021. That, says PwC, is vital in rebuilding trust in travel, and rekindling business travel in particular.
The report pencils in a 2021 expectation of 59.2% average occupancy in the UK regions, with a revpar of GBP39.89. In contrast, London hotels will see remaining weaker demand, with occupancy likely to be at 52.4%, albeit with higher room rates lifting revpar to GBP64.81. The numbers average out two scenarios modelled, one with a vaccine against Covid-19 arriving in spring 2021, the other with it not arriving until the autumn.
Warns the report: “Although forecasts for 2021 show some relief compared to the precipitous declines of 2020, this is far from ‘business as usual’, with room occupancy rates across the UK forecast to be at the lowest level since hotel benchmarking services began gathering data in the 1970s.”
The regions are likely to continue fare better than city locations, says the report, as domestic leisure and staycation demand will be stronger in 2021, as it was in 2020. Issues of enduring international travel restrictions will keep Brits holidaying at home. However, there are potential clouds over the scale of business next year, depending on how the UK economy bounces back after its year of lockdowns, and on how employment holds up. And PwC suggests UK regions may well start competing for staycationing leisure guests, perhaps pitching the attractions of the Lake District against those of the West Country.
The report suggests three areas for hoteliers to make priorities. First, now is the time to think differently, with an agile business model. Strategy needs to develop week by week, not be driven by a long-term plan, with the market so unpredictable.
At the portfolio level, there is a need to rethink investment strategies, say PwC. Now may be the time to restructure, or open negotiations regarding lease structures, and risk sharing. “Investors, lenders and management teams need to work together and act decisively to protect value where cash issues arise. This will be different for each scenario, depending on the medium-term prospects of that hotel,” said Mark Addley, PwC UK real assets business recovery partner.
The third imperative is to know your customer, and be prepared to change your strategy as necessary. Joined up data will help ensure competitiveness, as business customer profiles change, or leisure business becomes more important.
Samantha Ward, hotels leader at PwC UK commented: “As staycation demand for 2020 tails off and with nothing to fill the void, the end of this year and early next will be crunch time for many hotels in terms of the stresses they’re experiencing. Now is the time for hoteliers to take action
to help themselves through this difficult period.”
At Hotstats, EMEA managing director Michael Grove said there was a need for hotels to sweat their assets more creatively, to ensure a return to profitability. He told Hotel Analyst that asset managers are taking an increasing interest in the data his firm provides, to look for opportunities. “It’s become something that’s emerged with the involvement of third-party managers – there’s a clear alignment, as operators are using the data.”
Grove said that using a data driven approach can provide both offensive and defensive support. Over the last few months, he said comparable data has enabled asset managers to benchmark their performance, supporting discussions with banks and lenders, as well as holding operators to account. Hotstats data has also been used to prove loss, in situations where an insurance claim is being assessed.
The biggest gains, said Grove, arise from repurposing space. “Many hotels have not had to worry about space efficiency – they’re only challenged on rooms.” But with Covid-19 turning business upside down, all parts of the operation, from car parking to meeting and conference room space, and even exterior grounds need eyeing from a fresh perspective. Grove said that hotels with unused large grounds had options including outdoor sports such as clay pigeon shooting, paintballing or Segway riding, which could flip a hotel from business to greater leisure and experience business.
Grove said that modelling the success of others is also instructive. Hotstats data shows that hotels in the Middle East have been able to create a growth of more than 80% in room service revenues. “They’re serving restaurant standard food to the bedroom – and unlike a restaurant under Covid rules, there’s no capacity issue. That’s a change you learn from, only by looking at the numbers.”
Looking further afield for a return to tourism growth, delegates at the Future Hospitality Summit imagined how quickly, and in which direction, tourism will return. Host His Excellency Ahmed Al Khateeb, Minister of Tourism of Saudi Arabia commented: “Embracing technology and innovation as we rethink the future of tourism, using them as tools to ensure that the sector is more sustainable, will create opportunities for everyone, and a sector that is more resilient than ever before.”
Gloria Manzo, the CEO and president of the World Travel and Tourism Council, called for closer international cooperation to drive the pace of recovery: “We can have an 18-month recovery or a 3-year recovery period, depending on the coordination of stakeholders.”
HA Perspective [by Andrew Sangster]: The old joke runs that it is tough to make predictions, especially about the future (usually attributed to baseball player Yogi Berra). But economic models are notoriously prone to missing when there is a change in the direction of trend lines.
Despite all sorts of sophisticated ways of adjusting models, they remain susceptible to amplifying historic trends and missing the change in direction.
The PWC outlook makes for gloomy reading. It looks like a realistic assessment for the whole of 2021 but this could well disguise the reality of what it will be like trading. To use another old joke, if you put one had in the oven and one had in the freezer you may on average be at exactly the right temperature but it will be distinctly uncomfortable.
And so this might be for next year. The freezing part will be the first few months in the run-up to Easter when we are likely to still have social distancing and many other formal and informal restrictions. As this ends – which won’t be a dramatic Champagne-popping moment but rather a gradual easing – then the economy will splutter back to life. And at the end of the year, the economy could well be red-hot.
According to Goldman Sachs, the recovery is going to be robust. In the Euro area, GDP will be 5.3% higher by the end of next year. In the UK, 6.1% higher (although 2020 sees a drop of 10.5% against 7.2% for the eurozone). By 2022, we are roaring back to health – the roaring twenties – with GDP growth of 4.3% in the eurozone and 7.3% in the UK.
These forecasts are significantly more bullish than consensus – this has euro area growth in 2022 at 2.6% and UK at 2.9% – and Goldman Sachs (in the form of chief economist Jan Hatzius) admits that it has a much more V-shaped outlook than most.
The forecasts were made before news of the vaccine but after Joe Biden’s move into the Whitehouse largely certain. Biden is generally good news for the economy in that there will be a fiscal stimulus package (larger if the Democrats take the Senate on 5th January in the run-offs) and he is generally good news for the travel business in favouring more open borders.
Hatzius and team, in a note to clients dated 7th November, said: “As the population builds immunity to the virus in the spring and summer, we expect economic activity to rebound sharply in depressed sectors such as travel, accommodation and food services.”
Perhaps the most bullish part of the commentary was: “Our preliminary takeaway is that the pandemic recession has not only caused less scarring than widely anticipated but might actually have jolted the economy’s dynamism to some degree.”
It might be a long road but if the optimism at Goldman Sachs is right, we will have good transportation to whisk along it quickly.