How is COVID affecting the hotel sector?

How is COVID affecting the hotel sector?

COVID-19 has shaken up economic and financial activity worldwide, turning the tables on what was expected, and incorporating situations and perspectives that no one expected. While some industries have felt the hardest hit in their global history, others have received such benefits that they have rocketed to the top of global economic activity, with examples of each side of the coin being, respectively, the hotel sector and the digital entertainment sector.

By 2020, small but steady growth was forecast in the economies of the vast majority of countries around the world, with the tourism sector in the Middle East and the Mediterranean pointing to the best returns; however, the quarantine situation has complicated matters to the point that many doubted whether the tourism sector could recover. Today, with the vaccine on the horizon, the outlook is a little brighter, but, I will show you some relevant data that will allow you to synthesise the impact of the pandemic on the tourism industry and its future prospects.

Growth prospects in the tourism sector before COVID

Before analysing the impact of COVID, it is important to have a precedent, in this case, to know what the growth prospects were in 2019 and what the trend in the sector had been. This can give us a broader view of what the pandemic meant for tourism.

Global tourism had seen rapid growth since 2010, reaching its best numbers in 2017 and 2018. While some economic and social issues had slowed the increase in international mobility somewhat, there were 1.5 billion tourist trips worldwide, according to the UNWTO World Tourism Barometer, reflecting a 4% increase over 2018.

The outlook among investors and economists for 2020 was positive, with a large number of experts betting on an even greater increase than 2019, pending high-profile tourism events such as the Tokyo Olympics, Euro 2020 and the UAE's Expo 2020 coming to fruition.

Economic importance

The tremendous growth of the hospitality sector in recent decades had increased the confidence of local and national governments to invest in it, increasing investment opportunities in the sector, facilitating the establishment of new projects and promoting international investment in hotels and tourism. The idea was that the hotel and tourism sector would become an important part of the national GDP of many nations, in order to ensure significant local economic growth and generate a significant number of jobs.

Predictably, all these forecasts were dashed, not only by the cancellation of the aforementioned cultural and sporting events, but by a general quarantine situation that turned 2020 into the blackest year for tourism since, perhaps, the Second World War.

COVID's impact on the hotel sector from various perspectives

In order to put this section into perspective, it is necessary to mention that, in Spain alone, the hotel and tourism sector experienced a 40,000 million euro loss, affecting the jobs of more than 300,000 people, according to a study by the Deloitte chain.

With this as a background, let's start to detail some issues. In order to analyse the hotel landscape, it is necessary to look at it from a local, national and international perspective. This is in order to contextualise from each point of view how the tourism sector has been affected by this unprecedented challenge.

While it is true that both national and international tourism has not stopped 100% at any time; thanks to people with special permits, the reality is that the sector has been at a standstill almost entirely for several months. The arrival of COVID in Europe, America and the Middle East between February and March initiated a wave of desperate emergency measures in order to contain the infection quickly. While the latter was not achieved, radical quarantines reigned around the world with virtually no room for relaxation until July last year.

Even after many countries managed to contain the so-called "first wave", the tourism sector did not open its doors, waiting for the "second wave", which finally arrived, to collapse health systems again.

The result was as expected, with many hotels that were not in the most optimal situation, waiting for the arrival of the high summer season, having to close their doors for good. While many others were forced to reduce staff.

Now, it is time to analyse the various perspectives mentioned above.

In relation to local growth

The tourism and hotel sector is of fundamental importance for several countries, however, in some of them being an important part of their GDP.

Regardless of the type of tourism that cities mostly use, be it natural or cultural, they have in common the importance of a robust hotel offer. Like architectural and natural wonders, hotels sell experiences, experiences that in a global pandemic environment could not be provided.

Highly touristic cities, such as those that are world heritage sites and close to natural attractions, were hit hard, but the most profound impact was seen in small towns, which see their greatest bonanza at times of high tourist influxes that drive the local economy and motivate investors. With the disappearance of this business opportunity in 2020, the blow was severe for small hotels.

In relation to national growth

As mentioned above, national economies around the world were betting on the growth of the hotel and tourism sector to contribute to the overall growth of the economy. However, with other priorities on the horizon, such as dealing with the health crisis and easing the burden of quarantine on citizens, these prospects did not work out. Again quoting Deloitte, Spain's GDP contracted by 11.5% and, while the impact may have been less in countries that did not implement radical quarantines as frequently, such as the USA, the social unrest and various events of what was a tumultuous year also had a severe impact.

Faced with this prospect, the hotel sector was left to accommodate the few travellers who were able to move around in the midst of the pandemic, namely sportsmen, top executives, politicians and more. The hotel was largely dependent on government aid to avoid total collapse, but more on this later.

In relation to international growth

As I mentioned earlier, international economic growth was severely impacted, and the mobility bans, which are still in place, did not help. The outlook for international tourism growth was not positive and regions such as the Middle East, which had seen unprecedented growth in tourism activity, had to downgrade their expectations for the sector and bet on austerity.

Meanwhile, regions such as Southeast Asia, which had seen their foreign tourism growth falter, were hit much harder than they had expected.

In today's interconnected world, the ability to have comfortable and friendly experiences in other regions with a well-serviced hotel is vital, but with the impact of the pandemic it is to be expected that many will turn to digital means of connecting with other parts of the world, leaving physical experiences to one side.

Conclusions of this section

The impact of the pandemic on the tourism sector must be seen from a broad perspective. It should be borne in mind that the official figures are only a general overview. In times of outsourcing, hotels require the services of numerous operators who, whether in the IT sector, social media, travel agencies or others, worked hand in hand with hotels and were directly affected by staff and budget cuts. In turn, these services employed a number of people, creating a long chain of employees and companies affected by the situation.

Methods that have been used to lessen the impact

Many hotel companies have had to resort to a variety of methods to withstand the impact of the pandemic, as no business plan envisaged such a prolonged period of forced closure. Those that have not succumbed to the pandemic and declared bankruptcy have been forced to undertake a variety of activities to decrease costs, maintain the supply chain and meet payroll payments.

It is possible to think that the large chain hotels have only had to rely on the help of their parent company to survive. However, this is not so simple. Many hotels exist under the franchise model, which allows them to use and sell under the name of an international brand but with purely local investments. Those who operated under this system cannot rely on the brand owner to provide them with financial support so easily, so they have been equally affected. Nevertheless, the 5- and 4-star hotels have managed to maintain a customer base among the more affluent who needed to mobilise.

We will now look at some of the methods used by much of the tourism industry.

Cost cutting

Decreasing third-party services, reducing the number of rooms available, and doing without some additional services such as swimming pools and bars, have been solutions that hotels have had to incur in order to survive the economic impact of the pandemic. It is possible that after the emergency situation has passed and you go to your hotel of choice, it will be completely different from what you remember.

Downsizing

Related to the previous point. The reduction of jobs in the tourism and hotel sector has been one of the main problems resulting from the pandemic. Staff cuts have left only the minimum necessary to maintain basic services in hotels and lodges.

Betting on government loans

In order to keep the hotel sector afloat, help from government agencies was needed in many cases to maintain payments to staff and the production chain. However, the presence of other important areas in which to invest meant that the availability and accessibility of such assistance was scarce.

It is possible to think that the tourism sector was not important for the allocation of public funds, but this is a limited view of the situation. The hotel sector not only supports a considerable number of employees and families, it is also part of a production chain that involves suppliers and associated services, which would be affected by the impossibility of receiving the estimated payments.

Go digital

Going digital has become a necessity in times of pandemic, in order to attract the largest possible audience during periods of quarantine relaxation, and to be able to rebound in the best possible way when the health emergency is over.

Tools such as Bliscop's hospitality software can help you to digitise your business, which means significant cost savings thanks to the automation of numerous processes.

Future prospects

With the vaccine for COVID-19 getting closer and closer to everyone's reach, the future looks a little brighter and the outlook for the hospitality sector is once again filled with optimism. It is possible that, when it is determined that it is safe to resume regular activities, many will seek to release the tensions of quarantine by flocking to major tourist hotspots. However, it is important to think about the impact of the situation on the household economy.

Meanwhile, the resumption of public cultural and sporting events, such as the Tokyo Olympics, is filling those involved in the tourism sector with enthusiasm. However, the possibility that such a situation could be repeated in the age of globalisation leaves some doubt about the future growth of the hotel sector.

You can take a look at our website Bliscop if you are looking for a POS Software for your hospitality business!