European Hotels Among Last to Recover? Don’t Tell That to Germany

European cities’ reliance on long-haul travel means their hotels could be the last to recover from the coronavirus downturn in travel, Marriott CEO Arne Sorenson said Monday during an earnings call. But not every European city is built with the same travel fundamentals.

The general consensus among travel analysts and executives is that domestic and drive-to travel destinations will rebound before markets that depend more on air travel. China and the U.S. have a stronger domestic traveler base than European countries, meaning Europe’s hotel recovery could take longer, Sorenson said. But Germany is an exception to Sorenson’s generalization.

“Markets with less reliance on international and long-haul tourism will do better,” London-based STR Managing Director Robin Rossman said last week during a webinar on coronavirus’ impact on European hotel performance. “Quite a few German cities don’t rely on long-haul travel all that much and have a higher proportion of domestic demand.”

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About 76 percent of European hotels were temporarily closed as of the end of April due to coronavirus-related travel restrictions and downturns in demand, according to STR. That was significantly higher than the 16 percent of properties with suspended operations in the U.S. and 38 percent in Asia. The average European hotel occupancy rate, at 11 percent, of open properties in April was also lower than what was reported in the U.S. (39 percent) and Asia (26 percent).

“Much short to medium-term recovery [in Europe] relies on airlines, and the outlook there doesn’t look good,” Rossman said.

The expectation Norwegian Air will severely limit capacity until at least spring of 2021 as well as reduced capacity plans from stronger European long-haul players like IAG, owner of British Airways and Ibera, almost guarantees many European hotels will have to find business from new sources. Nearly a third of the UK’s tourism comes from long-haul destinations beyond Europe, according to Tourism Economics. But specific cities fare even worse.

Forty-six percent of tourism to Paris and Istanbul, respectively, stems from long-haul travel, the highest percentage of any European cities in the Tourism Economics data. Lisbon (44 percent), Rome (43 percent), and Barcelona and Madrid (40 percent each) are also leading cities dependent on long-haul airline operations. But only 21 percent of tourism to Berlin, the only German city to rank in the top 15 European cities for international travel, stems from long-haul traffic.

Germany only relies on 18 percent of its tourism to come from international countries, according to STR. The strong domestic travel base is likely a boon for German hotels, which are expected to begin reopening to tourists later this month. Travel analysts watched the recent Labor Day holiday in China as a model for what is likely to come to the rest of the world.

“It’s very domestic, 95 percent domestic, but it is helpful to look to what drove recovery there since they controlled the virus about two months ahead of the rest of the world,” Rossman said.

Mainland China hotel occupancy got as low as 7 percent in early February but has started a recovery and stabilized around 35 percent in the weeks leading up to Labor Day, Rossman said. Occupancies shot up to nearly 50 percent over the holiday weekend, with the Qiandao Lake region – a 5-hour drive southwest from Shanghai – reporting a 95 percent occupancy rate and tripled daily rates.

Fly-to destinations weren’t completely ignored in China’s recovery. The Hainan and Sanya hotel markets, both on Hainan Island, each reported strong occupancy over the Labor Day holiday. Sanya hotels averaged between a 65 and 70 percent occupancy, and daily rates were up 45 percent, STR reported. Hainan hotels ran at an average 75 to 80 percent occupancy, and daily rates were up 20 percent. But even these fly-to markets were heavily reliant on domestic travelers.

Even in the U.S., where some states have begun to relax coronavirus shelter-in-place restrictions, is seeing signs of an early-stage rebound with domestic travelers. Some Marriott properties in Hilton Head, South Carolina, and Santa Barbara, California, were on track to hit 50 percent occupancies last weekend, Sorenson said on Monday’s earnings call.

“Does it mean that occupancies are going to suddenly bounce back to where they’ve previously been? No,” Rossman said. “But it is a positive sign. It does mean demand is there as long as we’re able to travel again.”