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While airlines face a liquidity crisis, with a USD 61 billion cash burn in the second quarter, March has proved an equally brutal month for the hotel industry, which has recorded year-over-year profit plunges of 100% or more throughout Asia, the US, Europe and the Middle East.

ON THE AIRLINE FRONT:

In Australia, airline passenger demand has dived by 51%, with a revenue passenger impact of USD 14.25 billion (2020 vs 2019) and a potential loss of 362,100 jobs, according to latest estimates from the International Air Transport Association (IATA),

The IATA estimates indicate a worsening of the country impact from the COVID-19 crisis in the Asia Pacific region.

On 14 April 2020, IATA released updated analysis showing that the COVID-19 crisis will see global airline passenger revenues drop by USD 314 billion in 2020, a 55% decline compared to 2019. Airlines in Asia Pacific will see the largest revenue drop of USD 113 billion in 2020 compared to 2019 (minus USD 88 billion in 24 March estimate), and a 50% fall in passenger demand in 2020 compared to 2019 (minus 37% in 24 March estimate). These estimates are based on a scenario of severe travel restrictions lasting for three months, with a gradual lifting of restrictions in domestic markets, followed by regional and intercontinental.

Conrad Clifford, IATA’s regional vice president, Asia-Pacific, gave a stark assessment.

“The situation is deteriorating,” Clifford said. “Airlines are in survival mode. They face a liquidity crisis with a USD 61 billion cash burn in the second quarter.”

In an apparent reference to Virgin Australia, Clifford said: “We have seen the first airline casualty in the region. There will be more casualties if governments do not step in urgently to ensure airlines have sufficient cash flow to tide them over this period.”

He identified India, Indonesia, Japan, Malaysia, the Philippines, Republic of Korea, Sri Lanka and Thailand as priority countries that need to take action. 

IATA is calling for a combination of:

  • Direct financial support
  • Loans, loan guarantees and support for the corporate bond market
  • Tax relief

“Providing support for airlines has a broader economic implication. Jobs across many sectors will be impacted if airlines do not survive the COVID-19 crisis. Every airline job supports another 24 in the travel and tourism value chain. In Asia-Pacific, 11.2 million jobs are at risk, including those that are dependent on the aviation industry, such as travel and tourism,” Clifford said. 

 

ON THE HOTEL FRONT

In the first analysis of full profit-and-loss performance since the COVID-19 pandemic swept through the global hospitality industry, hotels in Asia, the US, Europe and Middle East recorded year-over-year profit drops of 100% or more, according to HotStats data, as the virus’s spread continued unabated, all but shutting down travel.

HotStats enables monthly comparison of hotels’ performance against competitors, measuring over 500 key performance metrics covering 70 areas of hotel revenue, cost, profit and statistics, which HotStats.com says provides deeper insight into the hotel operation than any other tool.

Gross operating profit per available room (GOPPAR) was down 110.6% year-on-year to USD -12.71. The triple-digit drop was by far the largest percentage decline ever recorded by HotStats since it started charting US data. March 2020 also marked the first time in the HotStats database that the US recorded a negative GOPPAR value.

The decrease in GOPPAR was a result of mammoth drops on the revenue side. RevPAR for the month was down 64.4%, heavily influenced by a 48.8-percentage-point drop in occupancy to 31.5%. HotStats prosumes that April occupancy will suffer even more, as many hotels were still open in early March.

The decline in RevPAR, combined with a more than 65% drop in total F&B RevPAR, led to a 62.1% decrease in total revenue (TRevPAR), the greatest decrease since January 2016, when TRevPAR was down 8.2% YOY.

As the top line dried up, expenses in March receded, too, on a per-available-room basis, but still ate into the already attenuated revenue. All undistributed expenses came down, while total labor costs on a per-available-room basis were down 21% YOY. However, savings in payroll did not match drops in revenue, since many hotels still had to maintain certain levels of staffing, even amid shuttered hotels.

Performance in Europe nosedived, too. While February data was unremarkable, March saw GOPPAR for the month fall a record 115.9%, the biggest YOY decline since April 2009, when GOPPAR dropped 37.9% in the thick of the Global Financial Crisis. It was the first time since HotStats began tracking monthly European data in October 1996 that GOPPAR as a value turned negative at -€8.33.

RevPAR was down 66.2% YOY, the result of a 44.6-percentage-point drop in occupancy, combined with an 11% YOY drop in average rate. As all ancillary revenue plummeted, it brought TRevPAR down 61.6%, again the largest YOY drop in the KPI since April 2009, when TRevPAR declined 23.5%.

A month earlier, TRevPAR in Asia recorded an average 56.3% YOY decrease in February. Mainland China and Hong Kong were the two most severely affected of the seven analyzed markets, with 89.9% and 82.7% YOY plunges, respectively. On the other side of the spectrum are Malaysia (down 23.9% YOY) and South Korea (down 24.8% YOY).

As COVID-19 conceivably lessens or peters out in the ensuing weeks and months and hotels reopen, expectations are that hotel performance will pick up from the depths it is in currently. But with demand tied closely to GDP growth and expectations of double-digit drops in the second quarter across the globe, hoteliers will be hard-pressed to generate a modicum of revenue throughout the rest of the year and likely will have to wait until there is a vaccine to see profits normalise.

Edited by Peter Needham