Almost daily, we get questions from customers about what effect the corona virus has on their business relations. These include questions such as “How does corona affect a credit report?” and “How likely is it that my customers or suppliers will still be around after the crisis?” Through blogs , we will provide insights into how much damage certain companies are suffering and how hard they are being hit by the crisis. In each blog, we will analyse a different industry and look at the effects on it. In this first blog, we have analysed the fall in turnover of hotels in the Netherlands and the effect of corona on their financial position.
Hotel results decimated
The hotel industry has been hit tremendously hard by the corona virus and lockdown measures to contain it. Many hoteliers have had to close their doors and have seen a big drop in sales during the initial lockdown. In March, occupancy – partly influenced by hotel closures – fell 66%, while the average room rate was also 5% lower than in 2019. In April, the percentages were even higher. Over half of the hotels in the Netherlands had to close their doors during this period, causing occupancy rates to drop by as much as 95% and room rates by 47%.
When most hotels reopened in June, there was no immediate rush and occupancy remained low. Average occupancy during that period was only 20. 5%, down 77% from last year. It was only in the summer that hotels in the Netherlands became busier again . Despite the increase, the average occupancy rate was still half that of a year earlier. The average room rate was also significantly lower in summer than before, at 25% to 40% .
Recreational market versus business market
Whereas hotels on the Dutch coast and inland areas had a reasonable to good season this summer, this is a very different story for the business sector. Hotels in the Randstad and mainly around Amsterdam and Schiphol Airport have been hit harder, than the rest of the country. This is due to the heavy reliance on international tourism and business travellers. Also, this year (almost) all trade fairs and conferences have been cancelled, causing many hotels in the Randstad to lose huge amounts of overnight stays.
The leisure market is less interesting for many hotels , than the business market. In addition to using the roomfor business, people are more likely to use the dinner and possible other facilities, such as room hire.
As indicated, hotels in other tourist areas in the Netherlands did a lot less badly. Since many Dutch people went on holiday in their own country this year, domestic tourists still kept the sector afloat somewhat.
Recovery by the end of 2022
According to hoteliers, when the sector will have fully recovered from the crisis depends mainly on the corona vaccine. Should a vaccine hit the market in 2021, occupancy rates could return to 2019 levels around summer 2022. However, hotels in Amsterdam do not expect to be back to previous levels until 2023. This is also due to the new developments around working from home and conference calls. How the business market will develop in the future is currently very uncertain.
Emergency Measure Bridging for Employment
Hotels made extensive use of the Emergency Employment Bridging Measure (NOW 1). The NOW 1 reimbursed up to 90% of staff costs of companies in the first quarter of the corona outbreak, this reimbursement was phased out in the following period. On average, staff costs account for 35% of a hotel’ s operating costs. Around 21% of costs are fixed costs such as property and energy.
However, the drop in turnover and ongoing costs are a multiple of the NOW received for most hotels. If we assume an even distribution of staff costs over the last filed financial year, most hotels applied for the full NOW for all staff at NOW 1. However, this means that with a 93 to 97% drop in turnover in May and April, only 30% of costs were reimbursed directly by the NOW and 37% after settlement of accounts statement. Hotels have thus had to cut costs, as a result of which suppliers have been directly hit in their turnover.
Bankruptcies within the industry
Before the corona crisis, the hotel industry was a, generally speaking, very healthy industry. Equity was roughly equal to net turnover and net income had increased from 4 per cent in 2011 to almost 11 per cent in 2018. Due to the good balance sheet position of most hotels, the loss suffered by corona will not immediately cause many bankruptcies. But the hotels will draw very heavily on their reserves. As long as hotels can continue to use the NOW and achieve a 20-30 per cent cost reduction, they will be able to survive this utilisation for about 2 years.
On 8 October, the QO hotel in Amsterdam went bankrupt. The QO hotel was one of the exceptions that started the corona crisis with a poor asset position of -8,183,233 Euro in 2018. Recently established hotels and hotels, which started the year 2020 with a lesser cash position, will navigate along the ravine in the coming months or go bankrupt like the QO hotel.
Source
Occupancy figures: Horwath HTL
Financial: CD+CBS
