We analyse the impact of economic slowdown, trade wars, and the on-going Convid-19 outbreak on hospitality sector. What does this mean for the medium and long-term prospect for the industry and how best can owners, investors and operators ride the storm?
I never imagined that I would be writing my first blog post for 2020 amidst a perfect storm impacting the Asia Travel and Hospitality industry. However, having attended the latest Asia Travel and Hospitality Outlook webinar (hosted by STR Global, in partnership with Oxford Economics), a most likely scenario of a full rebound by 2021 is anticipated, provided the Covid-19 outbreak is contained by end of Feb 2020.
In order to set the context right, let us set the baseline with the economic context pre-Convid-19 and the outlook for the Hospitality and Travel industry in Asia.
We ended 2019 with a slow-down in the global economy most significantly impacted by the on-going trade war between US and China.
However, on a more positive note we also witnessed the indicators plateau with prospects for improvement in 2020. While Oxford Economics still projects a 25% probability of a global recession, the services sector has remained resilient.
What does this mean for travel? As compared to 2017 and 2018, it was an overall slower growth for the Travel and Hospitality industry in 2019. Nevertheless, still a modest growth picture and despite a slower travel demand, it is still outpacing the overall economic activity.
Looking more specifically at the STR Global hotel performance data, there has been a significant demand growth across the world and demand has been able to outpace supply increase in most geographies. On the contrary, in Asia, a 2.3% growth in demand was unable to match the supply growth of 3.6%, leading to occupancy declines and a slow down in RevPAR.
The figure above sourced from STR Global, illustrates the RevPAR growth % across major Asia markets. 2019 has been a year of mixed performance across key markets. Largely, influenced by the slow-down in Chinese inbound and outbound travel, Hong Kong protests and US/China trade war. Certain markets such as Sydney and Melbourne, were negatively impacted by the increase in supply and Phuket experiencing exceptionally low tourist arrivals - recovering from the aftermath of the boat incidence and a strong Thai Baht.
Despite uncertainties in certain markets, Oxford Economics and STR Global remain positive on the outlook for Travel and Hospitality industry in the medium and long-term; though growth expected to be more sluggish.
Having set the performance baseline, let's overlay the current and likely impact of Convid-19. The weak start to 2020 for China was exacerbated by Covid-19. STR Global and Oxford Economics project large implications for destinations reliant on Chinese travel in the short run.
The immediate and negative impact of Covid-19 has been sharpest in Mainland China with occupancy levels dropping to below 7% and several hotels closing operations, indefinitely. Several Asia hotel companies have also revised their forecasts downwards by 30% for the next 90-120 days.
Using SARS as a point of reference, Oxford Economics and STR Global have conducted a sensitivity analysis taking into consideration several factors that they believe are different to what we experienced in 2003 during the SARS outbreak.
Oxford Economics projects a lot of sharp and negative impact on GDP in the short-term but do expect it to be short-lived. The underlying outlook is predicated by a relatively quick containment of Convid-19.
The impact is likely to be most accentuated in the first two quarters but unlikely to tip the global economy in a state of recession, though markets in Asia most likely to feel the pain.
Thereby, concluding that while large implications might impact the first two quarters for destinations reliant on Chinese travel, the most likely scenario is full rebound by 2021, provided it is contained by end of Feb 2020.
So, what is the solution, and is there something we can do to mitigate our losses?
Manav Thadani, Founder and Chairman, Hotelivate has simple suggestions. Hoteliers need to think and act rationally. The coronavirus outbreak is a unique one-off incident and as such needs to be treated in context. Dropping room rates drastically as a knee jerk reaction is not going to improve the situation, particularly if you are in a business location. Nations should be looking sharply at domestic tourism that has time and again increased the resilience of the industry in the wake of global adversities.
The hospitality industry is often considered "data rich and information poor". This is the time when most hoteliers should be looking at their data in a more meaningful manner to consider source markets, business segments and channels as a cross-reference to narrow down a game plan and tactical actions that may minimise the impact on business. Remember not all geographies and segments of business are impacted!
On a strategic level, Hotel owners and operators will need to work together effectively, foremost to ensure the health and safety of their guests and employees, but also to ensure the continued financial health of the hotel’s business and take into account commercial considerations such as performance tests and guarantees, unbudgeted operating expenses, employee management, temporary closure and business interruption insurance.
So while in the short-term the Travel and Hospitality industry braces for the immediate impact and fall-out, an early containment is likely to result in an accelerate re-bound. Stay safe and positive!
A full recording of the STR Global and Oxford Economics Webinar can be accessed here.
About the Author
In a career spanning 20+ years in the hospitality industry Puneet Mahindroo, Founder and CEO, Rev-Mantra Pte. Ltd., has worked in various hotel and corporate level roles in Marketing, Revenue Management and Distribution. Puneet is also involved in various industry wide initiatives. He serves as the Asia Pacific Chair to the HSMAI Revenue Management Advisory Board and in the past successfully completed 2 terms as the Asia Pacific Chair on the Board of Directors of Hotel Electronic Distribution Networking Association (HEDNA). Puneet is passionate about education and training and has been external/visiting faculty of Revenue Management to leading business schools.
About Rev-Mantra Pte. Ltd.
Rev-Mantra management consulting services focus on our clients' most critical issues and opportunities: strategy, marketing (offline/online), distribution, sales representation and analytics across service industry and geographies. We bring deep, functional expertise, but are known for our holistic perspective: we capture value across boundaries and between the silos of any organization. We have proven a multiplier effect from optimizing the sum of the parts, not just the individual pieces.