Leisure and domestic travel will be key to recovery in the European hotel sector, Fitch Ratings says. Business travel demand, however, will take longer to return. Companies will reassess their travel needs, with some demand potentially being lost forever. Liquidity remains paramount for operators’ credit profiles until their cashflow generation improves.
New European travel restrictions delayed recovery in the region’s lodging sector. Its 2021 performance will be well below 2019 levels, with full-scale recovery starting in 2022, unless there is another round of strict coronavirus pandemic-related mobility limitations. However, hotel operators may need to adapt to a new post-pandemic reality as demand, particularly in the business segment, may not fully recover in the medium term. Hotel rates will be down in the short term under pressure from overcapacity and the need for hoteliers to generate sufficient occupancy to break even. European hotels are unlikely to benefit from quicker demand recovery in other regions, such as APAC, as long-distance travel remains limited.
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The recovery in leisure travel will be supported by pent-up demand and the population’s accumulated savings, although timing will be heavily influenced by the success of pandemic containment measures, including vaccination roll-outs. There is currently limited visibility on bookings for this summer – the true scale of travel uptake will become clear only after travel restrictions are lifted, most likely by May, although it will not reach pre-crisis levels in the short term. The budget and economy segments are able to rebound faster from downturns than the higher-tier segments, and we expect this to happen after this crisis.
Business travel needs will undergo reassessments with one-to-one in-person meetings facing increased competition from virtual meetings. Up to 20% of demand in this segment could be permanently lost, according to industry leaders’ expectations. Business travel was most profitable for hotel operators before the pandemic as rates were more flexible and weekdays were filled – lost demand will therefore accelerate pressure on their margins. Demand for events and conferences is likely to fully recover as ‘hybrid’ events (combining virtual and face-to-face gatherings) do not offer the same experience. However, this segment is seasonal, with demand peaking in September-October and a certain period is required for organising. It is unclear if there will be enough time for this year’s seasonal demand to return once travel restrictions are lifted.
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