The impact of COVID-19 on Egypt’s hospitality market has been revealed for this year’s second quarter. Data from Colliers International shows how the popular holiday spot for Brits and the Middle East has struggled massively with the virus
Elsewhere in Egypt, Cario and Alexandria have seen occupancy drop by 54 percent and 49 percent respectively.
InterContinental Hotels Group (IHG) has posted its financial results up to June 30, 2020, giving an insight into how COVID-19 has hit business.
IHG recorded a severe revenue crash in the first half of the year, falling by 52 percent, the group brought in just US$488 million in the first six months of the year.
Operating Profit for the same period last year was $410 million, equating to an 82 percent drop.
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Key Take Away
Accor announces that it has signed an agreement with a consortium of 5 banks for a new €560m Revolving Credit Facility (RCF).
It has been underwritten by the following 5 banks: BNP Paribas, Crédit Agricole CIB, Crédit Industriel et Commercial, Natixis and Société Générale
Accor has re-opened 250 hotels since end-April. To date, 42% of the Accor network is operating.
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InterContinental Hotels Group ("IHG") provides a business update in light of the rapidly evolving situation regarding Covid-19.
IHG's Global RevPAR decreased 6% across January and February, with a broadly flat performance in the US offset by declines in Greater China, which saw an almost 90% decline in February.
During March, given the measures adopted by governments around the world to restrict travel and social contact, we are anticipating Global RevPAR declines of around 60%, with steeper declines in those markets most impacted by restrictions. Cancellation activity for April and May, and current booking trends, indicate continued challenging conditions. In Greater China we now have 60 hotels closed compared to 178 at the peak, and in recent days have begun to see improvements in occupancy, albeit at low levels.
We have many cost reduction and cash conservation measures at our disposal. These measures will result in a reduction of up to $150m in our fee business costs. Similar actions, along with a reduction in marketing spend, are being taken across the System Fund in response to expected lower assessment fee receipts. We are also taking action in our owned, leased and managed lease hotels to contain costs.
In addition, to support our owners and manage their cash flows, we have launched a comprehensive package of measures including delaying renovations and relaxing brand standards.
IHG remains conservatively leveraged. The staggered bond maturity profile, with the first maturity of £400m not due for repayment until 2022, provides long term funding. In addition, the company has access to a $1.4bn Revolving Credit Facility (RCF), which is currently $1.2bn undrawn, which together with free cash flow generation provides significant liquidity
In addition, the Board is withdrawing its recommendation of a final dividend of 85.9¢ (~$150m) announced on 18 February 2020 and will defer consideration of further dividends until visibility has improved.
We continue to monitor the situation closely and will provide further commentary at our First Quarter trading update on 7 May 2020.
The "light and warmth of hospitality," coined by Conrad Hilton, will not be apparent upon entrance to a hotel post COVID-19. Expect acrylic covered front desks, masks and gloves, signage advising guests to use caution, frequent disinfecting of public spaces, wide open lobbies with limited seating and restaurants and bars that have six feet of separation in every direction. The good news is that we are approaching the re-opening of the economy!
According to the top prognosticators in the hotel industry, here is what we are looking at from an occupancy, average rate (ADR), RevPAR perspective:
The best case seems to point to a drop in occupancy from 66% in 2019 to 50% in 2020 and a drop in ADR from $133 to $107 resulting in a RevPAR drop of over 30% from $88 to $55. Worst case scenarios have us dropping well below 50% in RevPAR, close to Armageddon. Once STR releases an April forecast, the overall average should increase. These firms have done a tremendous job of analysis given the completely different demand generators—the bad news here is that even in the best scenarios, there are no net profits forecast for 2020.
Profits will be gone in 2020 with hopes of a return to closer to normal revenues and profits in 2021 or 2022. The implementation of completely new protocols including hospital grade sanitization, masks and thermometers will be fairly expensive relative to supply costs.
We can expect values to decline in line with net income, but with less deals done. The real question will be when will values come back to 2019 levels and will it be a buyer's or seller's market. The latter depends on how long it will take for this destabilized market to bounce back. Over-leveraged sellers will be at risk as short-term values will take a precipitous drop. However, lenders will only foreclose on operators who do not engage in a sincere way. They do not want to own hotels. Transaction volumes will be down according to an April, 2020 Lodging Industry Investment Council survey.
Airbnb and short-term rentals will continue to impact hotels. With unemployment numbers at new highs, millions of Americans will need to find a way to supplement their income and home sharing may be people's means to do so. New supply for those accommodations could surge and have a negative impact on hotel room rates in general. But many cities have sued Airbnb and our original prediction was that they would become an online travel agency (OTA) by 2020. Well, only time will tell, but they have postponed their 2020 IPO.
We will start to see two separate groups emerge - those who feel they can travel freely, and those who are still susceptible to the virus. The first group is made up of individuals who have tested positive for the virus anti-bodies - meaning they had the virus and lived and those who believe they are not at significant risk. This group will be our primary source of demand, while others may continue to quarantine and limit travel. This summer, we can expect to see "pent up" demand. After being stuck at home for eight or more weeks, consumers will be itching to travel.
The Summer Olympics’ performance gains for Tokyo hotels are projected to be lower after the one-year delay in the event, according to the latest forecast from STR and Tourism Economics.
“We are projecting less overall demand when compared with our initial forecast for 2020, and while double-digit RevPAR growth is expected, it will come from a much lower base,”
“Lower absolute demand levels would be linked with traveler perception based on the timeline of the COVID-19 pandemic, as well as financial challenges of a potential global recession. The still high level of demand combined with ADR growth should drive RevPAR upward, similar to the growth percentage we saw during last year’s Rugby World Cup in the market.”
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Eclat Hospitality Weekly Newsletter - 43 by Eclat Hospitality
This is edition: ^ Career Article Of The Week: Bridging the Knowing-Doing Gap ^ Our Open Positions ^ Stuff We Loved This Week
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