The journey back

19 June 2020

The UK government has faced significant criticism, both domestically and abroad, for its handling of the
coronavirus crisis, but the country’s recovery and a return to international travel is important to hoteliers and economies across the continent. Stephen Collins, associate director with HVS’s London office, outlines what that route could look like and how various domestic markets might perform in the interim.

Like most of the world, the UK has been hit hard by the coronavirus, with more than 40,000 deaths and 280,000 confirmed cases at the time of writing, and the highest number of attributed deaths in Europe – although fewer deaths per capita than Spain, Italy and Belgium. The pandemic has hit all areas of the economy, but the hospitality industry has undoubtedly been and will continue to be one of the worst affected.

Fortunately, there is light at the end of the tunnel for the lockdown phase, and the focus of hoteliers is shifting from how to manage the closure to developing a sound reopening strategy. On 10 May 2020, Prime Minister Boris Johnson indicated that some parts of the hospitality industry may begin to reopen from July 2020 – conditional on the state of the pandemic at that time.

While this is a positive sign for hoteliers itching to get back to business, it is important to make a distinction between when hotels will be allowed to reopen and when they should reopen. As with the rest of Europe, hotels are expected to reopen gradually in the UK and they will likely need to continue making use of the government’s job retention scheme, which was fortunately extended through to October, until demand returns in sufficient quantities to justify a more profitable operation than the cost of remaining closed.

The importance of domestic demand

As stated previously, and in line with what seems to be the consensus among most in the European hotel industry, countries and markets with less reliance on international demand and air travel are likely to see a faster recovery than others. The map in Figure 1, on page 16, provides an overview of the proportion of room nights from domestic guests in each country. As can be seen, more than half of the UK’s demand is domestic. All else being equal, this bodes reasonably well for the country’s recovery. While it is not as well placed as the Nordics, parts of eastern Europe or Germany – although it should be noted that much of the latter’s domestic demand is driven by trade fairs, which will likely take longer to return to normal – it is in a similar position as France, and is significantly better off than much of southern Europe.

It is also important to look at this from the other side of the equation and consider what happens when holidaymakers, who typically travel overseas for their holidays, elect to stay within the country instead. The UK is an extremely important source market for much of Europe, generating hundreds of millions of tourist room nights on the continent. The second map in Figure 2, below left, illustrates the relative importance of UK tourists as a proportion of international demand.

Cautious optimism

Despite the easing of lockdown in the UK starting to get under way and airlines such as Ryanair announcing that they are aiming to resume up to 90% of their scheduled flights by July 2020 – albeit possibly with a reduced seating capacity – the government has stated that social distancing, 14-day quarantine and other protective measures will likely result in summer holidays in foreign countries being off-limits for people in the UK. This will undoubtedly have a massive impact on Spain, Portugal, France, Iceland and other countries that are heavily reliant on UK tourists. Even in those countries in Figure 2, where UK travellers account for less than 10% of foreign demand, the number of tourists can still be in the millions in absolute terms. For example, although UK tourists account for only 7% of foreign demand in Italy, this amounts to more than 14 million room nights annually.

The question then becomes: what will these travellers, who would traditionally be going overseas, do instead? While some might be comfortable enough to still travel overseas and determined enough to find a way of doing so, the decision for most will be whether to postpone all holidays until 2021 (or beyond) or to plan a domestic holiday. Assuming government policy allows for doing so, people will need to weigh their confidence in the health and safety measures of hotels, restaurants, transport and so forth, against their desire and need to get out of their homes and local area. Anyone who has been for a walk in a London park only to find it crowded with fellow ‘exercisers’, despite lockdown measures during 2020’s unusually sunny spring, can attest that there is clearly a strong desire to be outdoors and away from home. The psychological impact of this lockdown will pit the prolonged cabin fever against the fear of being infected, and if the former wins out, hotels are cautiously optimistic that UK tourists will be eager to book some sort of holiday once it is deemed safe enough to do so. This could be a silver lining for UK hoteliers, and operators of self-catering and camping operations. This will also help support domestic demand in the short to medium terms, smooth the recovery curve and allow hotels to stay in business until the pandemic is brought under control, and international demand begins to return.

A strategy to reopen

Having considered the macro implications of domestic versus international demand on the UK as a country, hoteliers must also drill down into the detail of their region’s, town’s and micro location’s demographics and segmentation to guide their strategy for reopening. The third chart in Figure 3, below, provides an overview of the importance of the domestic market across the UK’s countries and regions. As is clearly evident from this chart, the UK regions are significantly less reliant on international demand than London and, as such, may see a faster recovery to pre-crisis levels or at the least a less pronounced drop in performance in the short to medium term. This will naturally depend on the specific market – other gateway cities with heavy reliance on international demand like Edinburgh are also likely to find themselves in a similar situation to London. Those hotels that are more heavily reliant on conferences, meetings and banqueting events may find that recovery will also take longer.

Of course, the share of domestic demand is not the only variable in determining how quickly a market will recover. Segmentation will also be a major factor, with leisure business expected to return faster than corporate. Figure 3 breaks down the domestic demand in each region by purpose of travel.

The regions, again, look to be in a good position compared with the capital, with most generating more than 50% of domestic room nights from people on holiday. South-west England is the clear winner with holidays accounting for 69% of domestic room nights – and 54% of all room nights if international demand is included. Therefore, it is cautiously optimistic when considering the UK hotel industry’s ability to recover at a reasonable pace, compared with the rest of Europe, until international demand returns. This is not to say that it will be smooth sailing for anyone or that there will not be casualties – there certainly will be, particularly in markets reliant on international and/or corporate and MICE demand. But given the psychological toll that this lockdown is having, and the likely extended limitations on going overseas, UK hotels should be able to capture a portion of traditionally outbound tourists. Even a small fraction could tip the scales just enough to help many properties remain solvent throughout this crisis.

14 million

Room nights annually from the 7% of British tourism in Italy.

Top of the agenda

“When demand for hotels does start to return, whether that’s later this year or next year, operators will be coming back into a very different market than the one they were in previously, with a new set of consumer concerns and requirements,” said HVS London chairman Russell Kett in May 2020.

“Building trust between hoteliers and customers will be paramount, with businesses operating and presenting their services in a way that makes the guest, and the staff who take care of them, feel comfortable, confident and protected.”

Ongoing hygiene and cleaning protocols will be top of the agenda, with Marriott, Hilton and Accor already launching programmes designed to communicate and promote high standards of hygiene and cleanliness. Operators will need to consider how best to protect guests and staff at each interface: screens at check-in and a remote check-in/out option; social distancing in public areas, such as restaurants, corridors and lounge areas; controlling the numbers of people using lifts at any one time; as well as how guests can, and should, make safe use of leisure facilities, pools, gyms and spas.

“Hoteliers will need to rethink almost every part of their business, focusing on all areas that are accessed by guests, as well as considering the safety and protection of staff,” says Kett. “The traditional buffet breakfast is likely to become a thing of the past – at least for the time being.”

HVS expects most hotels to reopen gradually, adding rooms and rehiring staff when demand improves. This might result in the need for furloughing schemes to be continued for some staff while hotels implement this ramping up. Some European hotel markets are forecast to show quicker recovery than others, depending on when their lockdown restrictions are lifted and the profile of their business. Those with a strong domestic market and a high percentage of leisure guests are likely to see a quicker recovery than those relying on international travel, corporate business and MICE customers.

HVS has already identified Germany as being likely to have a faster recovery than other European countries. Germany has both a large domestic leisure base and a significant domestic corporate travel base, ranking second in a European context. This strong domestic demand will fuel growth once the German government opens up more commercial activities in the country.

“This pandemic is likely to change our habits until a satisfactory vaccine is developed, and consumers will remain cautious about using hotels until their trust is restored,” Kett says. “Long term, we are confident that the European hotel sector can bounce back to levels experienced in 2019, although it may well be 2022 or 2023 before this is accomplished.”

Source: HVS


Domestic demand as a percentage of total room nights across Europe
UK tourists as a percentage of foreign demand
Domestic versus international demand (percentage of room nights)

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