• Pain felt in Spain

Spanish hotel groups are continuing to face challenges, due to their reliance on inbound visitors to drive business.
Further European lockdowns, combined with weaker seasonal business, have led to a situation where planned reopenings have stalled, and some hotels are being shuttered for the second time this year.
At both Melia and NH Hotels, hopes are now that progress battling Covid-19 will allow their businesses to relaunch from easter 2021. Both are heavily exposed to the Spanish domestic and inbound market. And, while they have interests outside the country, the overseas portfolios are, largely, suffering too.
At Melia, the group ended the third quarter with 157 of its 326 hotels open, or just over 50% of the total rooms in the portfolio as the company used a breakeven formula to decide on reopening. Revenues were EUR111.1m, down 78.5% year on year, while the group managed to reduce operating expenses by 60.6%.
Melia has been burning cash at EUR34m per month through the summer, with the total increase in debt to date through the year running to EUR396.9m. It finished the third quarter with a “solid” liquidity position of EUR442.5m – noting that only 10 of its 43 owned hotels actually have mortgage debt, and those sit on LTVs of less than 30%.
But, with a seasonal downturn in prospect, and continuing restrictions on international travel, the company said it would be closing its resort hotels in mainland Spain and the Balearics. Those on the Canary Islands will remain open, hoping to attract visitors from the UK and Germany. It has also reclosed seven hotels in Germany, due to new temporary government travel restrictions.
In contrast, hotels in Mexico and the Dominican Republic will reopen, ahead of high season in that part of the globe. Some properties have had to operate at no more than 50% occupancy due to local Covid-19 protocols. Hotels in Cuba have been undertaking refurbishment work, with incoming tourist business prevented until flights resumed in September.
“In the short term, our contingency plan has allowed us to guarantee the viability of the company in a context of maximum uncertainty and an unprecedented drop in demand,” said CEO Gabriel Escarrer Jaume. “In the long term, the company has begun a strategy review, which will place it in an unbeatable position to take advantage of the growth opportunities that will emerge due to the foreseeable consolidation of the industry after the pandemic.”
One bright spot for Melia has been a continued push to gain more direct business, with melia.com and the loyalty programme together delivering 60% of sales. The company said this allowed it to manage – and largely maintain – room rates more effectively. The group is working on a comprehensive digitalisation of its processes, from back and front office to the customer experience.
“We are confident that the worst of the crisis is behind us,” said Escarrer, “but our key markets continue to be affected by the measures being implemented by governments to combat the pandemic. Right now, only China is seeing a level of activity similar to that before the crisis.”
There have been no asset sales so far this year, and just three openings, offset by the loss of three properties from the portfolio. Next year, the pipeline has 21 openings planned, of which nine will be in Asia Pacific.
At NH, with less exposure to the Spanish tourism segment, the figures looked comparatively better. The company had 75% of its hotels open by the end of the quarter, with revenues climbing to EUR148m. Cash burn had been reduced to EUR25m a month, while cash reserves stood at EUR485m at the end of September. NH has also renegotiated and extended the maturity of debts, meaning it now faces no major cash calls until 2023. Ultimately, NH has the backing of Thai-based parent Minor Hotels.
Ramon Aragones, NH CEO commented: “The group has once again this quarter gone to tremendous efforts to reduce costs to render the revenue generated at all of the hotels reopened profitable, despite low occupancy levels. We are striving to monetise each visit and generate loyalty among all of our guests, framed by an exhaustive effort that continues tirelessly thanks to the hard work and sacrifice of NH’s professionals.”
“We remain firmly committed to preserving liquidity and holding on to the Group’s notable competitive advantages for when the business returns to normal. Every quarter that we overcome such adverse business conditions is bringing us that bit closer to our objective. Indeed, the recent announcements regarding progress on ongoing research into an effective Covid-19 vaccine bodes for a potentially accelerated recovery in the travel sector in 2021 that NH is determined to benefit from.”
Like Melia, NH warned that it would be closing hotels in key locations once again, in the face of government restrictions to limit Covid-19 transmission.
During the quarter, NH pushed on with completion of a deal with French institutional landlord Covivio, which will see it take over operation of eight luxury hotels across Europe, all of which are converting to Anantara or NH Collection brands. The hotels will run under sustainable leases, with NH/Minor investing cEUR50m in the operating businesses.
Melia still believes Easter 2021 will be a turning point, from which a gradual recovery is likely, with a return of inbound Spanish visitors. NH, meanwhile, notes its strength in key markets based on high domestic demand, expecting intra-European travel to improve too.

HA Perspective [by Chris Bown]: It will be a while before the Spanish hotel groups really feel the warmth of the sun, and the warm glow of holidaymakers returning to the Med. In the meantime, they’ve been taking a scythe to costs and operating systems, and working out how to really attract direct bookings. Expect these changes to help margins, once the guests start booking again.

Additional comment [by Andrew Sangster]: Pick a segment you don’t want to be in right now and upscale, urban leased hotels is near the top of many answers. Given this is where NH mostly sits, it is understandably feeling pain.
In its presentation for Q3, NH listed seven ways it would overcome the crisis finishing with the eighth as integration opportunities with Minor, which owns 94.1% of NH. And Minor is an interesting way to look at the recovery opportunities given Minor’s focus in the earlier to rebound Asian markets.
Pre-crisis, Minor said its breakeven occupancy was 49.6%. After, it has been reduced to 34.4%. Unfortunately, Minor’s occupancy is still below what it needs and in October fell back further.
In Thailand, Asia, the Middle East and Africa, August through to October saw Minor’s hotels hit the reduced target. For these regions the average breakeven occupancy was just 22.3% and the group exceeded this although October had seen a fall away from forecast.
Not surprisingly, it was Europe and the Americas that had fallen below expectations and failed to hit the 38.5% occupancy needed to breakeven. Things were getter worse in September and October rather than better.
Minor said it was embracing the long-term “new normal”, although it failed to specify how long the long-term is. What seems reassuring, however, is that there is enough liquidity in the business. This is being boosted by an “asset rotation strategy” which will be THB15bn (EUR417m) but might expand to THB35bn (EUR973m).
Cost cutting has been aggressive, with 35% shaved from last year’s costs and expenses against the originally earmarked 25%. Most money was chopped out of non-payroll operating expenses (50% of the overall total of savings) with payroll accounting for a bigger proportion of savings than anticipated at 37% and leases being 13%, slightly less than thought when the plans were drawn up.
It looks like Minor will emerge from the crisis as a leaner and smaller group (at least in terms of owned assets). Minor even managed to get in a dig against its rivals in Europe, stating: “NH Hotel Group has clearly outperformed its closest competitor in terms of financial performance, including revenue, EBITDA and net profit recovery.”
With trading currently on a trajectory that is worse than forecast (and let’s be clear, the forecasts were not pretty to begin with), it is going to be a difficult winter. The hope for Spain is that there is a stronger than expected recovery by early summer. I fear this is placing too much hope on how quickly vaccines and testing can get things back to normal.

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