I’ve heard from more than a few people recently that the first six months of 2020 felt like at least two years, as the journey unfolded through shock, despair and uncertainty but also brought togetherness, belief and positivity.
At STR we started mapping out potential recovery scenarios quite early, based on past crisis and down cycles, at a time when only China and pockets in Asia were affected. Since late January we have learnt so much across many verticals, and yet we have so much more to learn.
[The omni effect of Covid-19] brought forward an unusual visibility in the difference in management of the crisis, which in turn create further complexity to the recovery roadmap.
It was reasonably easy to apply both ongoing and historic recovery scenarios to markets outside China as it unfolded, initially with only local leisure travel over the weekend to properties that allow for social distancing. As things have progressed, we are able to analyse recovery more granularly but also realised that variations in approach create uncertainty and complexity we did not foresee.
As an example, South Korea has seen domestic Saturday staycation occupancy throughout the crisis. In March this meant weekday business at maximum 10% and Saturdays at 30%. These days weekdays sit at 30% and Saturdays are reaching 70%. It’s a big difference but still clearly quite inhibiting. We would expect that trend to continue until significant travel lanes open up with the country.
What Q2 brought over Q1 was also the increasingly varied regulations or even lack of regulations, amidst media fluctuations on what should or should not be done. This only added to the uniquely difficult decision‐making process accommodation owners and operators where navigating.
The omni effect of Covid‐19 is the main factor that makes it different from anything we’ve ever seen before. The 2008 financial crisis spread from the US but did not affect everywhere and everyone, nor did any natural disaster, terror attack or previous pandemic in recent history.
This brought forward an unusual visibility in the difference in management of the crisis, which in turn create further complexity to the recovery roadmap. This diversity in decline is already becoming even more visible in the complicated world of recovery.
Resorts, islands or gateway markets that rely almost entirely on global and consistent travel demand will not only have to dig deep into relief reserve pockets but also see a binary recovery. International flights with decent load either exists or it doesn’t – regardless of marketing campaigns or how the pandemic is managed locally. This creates potential risk scenarios where a market would need to open up too early to welcome travellers.
This means destinations such as the Maldives and French Polynesia, but also Singapore and Hong Kong – may take different approaches to see demand beyond the very low hotel occupancy it would find without international flights.
Conversely, in markets where domestic business is not only available, but also representing most of the revenue in a normal year, it may seem easier, but competition will be rife. Markets like Indonesia, Philippines, Japan and India have an opportunity to regain ground domestically, re‐align profitability targets and forecast a more gradual scale, compared to the binary markets mentioned earlier. But on the flipside, all those markets are very large and may find it harder to contain the virus, thus to some degree levelling the playing field.
Regardless, considering how we keep shrinking the world by enabling affordable and fast travel options to anywhere in the world, this has created a work force and economic dependency. As an example, tourism sustains 10 percent of the economy to New Zealand, and 14 percent of its workforce, and this in a market broadly considered a domestic market. However, without international arrivals there is a natural gap in spend in any market, including the land of the All Blacks.
At this point in time, six months after the crisis started, we have seen markets having to deal with a recurrence of the virus. Any additional month of missing travel demand puts increased pressure on both government and industry funds and the need for relief to small business and large conglomerates is still very apparent.
Mainland China saw domestic recovery demand plateau around 50% hotel occupancy since June, and a new virus outbreak in Beijing created 4 weeks of lockdown, before the capital could clear that phase and now start to get back on track for a second time. Our expectations are that, at a national level, mainland China will gradually grow above the 65% occupancy level reasonably soon, and thus only be 10% points away from 2019 demand levels. With hotel rates almost 10% in range of last year, there is certainly potential for RevPAR levels to be within single‐digit distance of 2019 by the end of the year.
There are many contributing factors that will slow down recovery, including the new supply of hotels that was planned, where even if some projects have been deferred or abandoned, there are still well over 4,000 projects in the active pipeline in Asia Pacific that over time will also try to take some of the limited demand.
But the main limiting factor that remains top of mind is the overall economic effects to society, what this recession is creating in terms of unemployment, diminishing wealth and consumer spend ‐ bringing the global economy to a grinding halt.
The hospitality recovery formula remains simple, where removing the virus will limit restrictions which in turn enables travel and tourism. It is of course far complex than that, where numerous political approaches and uncertainty puts pressure on civil services, healthcare and the economy as a whole.
Based on what we are hearing from authorities and industry, I find it unlikely that any broad international travel would take place in 2020 – anywhere in Asia Pacific. Beyond any limited travel lanes that enable something outside essential travel, I look at Q1 2021 and hope that progress will be enough to see a resurgence in travel at least at short‐ to medium haul destinations.
Until it opens up more widely, where it remains possible, the major move right now is to nurture and grow domestic and regional travel.
But travel will come back. I also believe that there will be a limit to the level of adjustments in how we lead our lives imposed upon us by Covid‐19.
When an older and large but still robust computer server needs to reboot, it will take time and during that time it may not function. But it doesn’t change the fact that its components are still intact and that it will again service its functions accordingly.
Similarly, the majority of hotel buildings erected won’t go away. Airplanes will be ready to take off. People will be ready to service these locations, and others will be ready to travel because they either need to or want to – or both.
There is no doubt we will need to dig very deep and work together to get back on track after this reboot, and that it will take longer than we think, but it will come back. As the New Kids on the Block said – Step by Step.