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Euro crisis impacts hotels in different ways
May 8 2012

Flat or declining business, difficulties in obtaining credit and guests seeking bargains are among the issues facing hoteliers in the countries most affected by Europe’s economic situation.

  • The Eurozone debt crisis is impacting the hotel industry in different ways.
  • RevPAR was down 3.2% in southern Europe through February 2012, according to STR Global.
  • As pricing confidence remains volatile, bargain hunters from more stable economies have increased interest. 

MADRID—The Eurozone debt crisis—which has left countries in southern Europe such as Greece, Portugal, Ireland, Italy and Spain reeling from massive deficits, bailouts  and record unemployment—has affected the global hotel industry in myriad ways, according to industry players.

Flat or declining business, difficulties in obtaining credit and guests seeking bargains in the countries most affected by Europe’s economic mess are among the issues facing hoteliers.

Pestana Hotels & Resorts, which has 45 hotels including 23 in Portugal, has seen a drop off in the region.

“It’s particularly affected our hotels in Portugal since the relevant markets for these units are decreasing consumption: national and Spanish markets,” said CFO José Theotónio.


José Theotónio, CFO of Pestana Hotels & Resorts

A spokesperson from Accor, meanwhile, described the situation in southern Europe as “complicated.” The Paris-based owner, operator and franchisor has 173 hotels ranging from budget to luxury in Spain, Portugal and Italy, which have reported decreasing revenue per available room since mid-2011.


“Over the first quarter of 2012, business continued to contract in the region, specifically in Spain and Portugal,” Accor’s spokesperson said.

In Spain, for example, RevPAR decreased 1.4% at Accor’s upscale and midscale properties during the first quarter. It was down 5.35% at the company’s economy brands. 

STR Global’s latest global performance data concurs. According to March year-to-date compared to the same three-month period last year, occupancy in the region was nearly flat at 52.4%, average daily rate in U.S. dollars had decreased by 2.6% and RevPAR was down 3.2%.

Bargain shoppers smell deals
As the crisis continues to shake pricing confidence throughout southern Europe, bargain hunters from the more stable source markets of the United Kingdom and Germany are beginning to circle.

“Searches on the U.K. and German points of sale have risen for the countries currently experiencing financial instability in the first quarter of this year, compared to the same period in 2011,” said Alison Couper, the director of communications for

Searches for Portugal rose by 124% and 132% from travelers in the U.K. and Germany, respectively. Searches for Spain were up by 106% and 65%, Greece by 125% and 39%, and Italy by 90% and 46%.

“We have also seen a consistent search increase for the major cities in these countries,” Couper said, citing figures that showed searches from the U.K. for hotels in Florence were up 161%, followed by Lisbon at 139%, Athens at 119% and Madrid at 105%.

Searches from Germany for accommodation in these cities also registered significant increases in the first quarter, with Lisbon heading the list with a rise of 207%.

“This indicates that consumer confidence in these destinations remains high and that their enduring appeal as holiday destinations cuts through any of the negative headlines surrounding their current economic climate,” Couper told

She predicted the trend for vacationers seeking out destinations in southern Europe would continue as the holiday season gets closer.

Accor’s spokesperson shared similar findings. While the majority of Accor’s properties in Europe serve business travelers, its handful of resort properties are seeing an uptick in bargain-shopping behavior by price-conscious leisure travelers, the spokesperson reported.

Pestana’s Theotónio said the company has yet to feel that trend, however. Travel agents’ primarily have focused on guaranteed availability—not price—especially during high seasons when the demand has become more concentrated, he said.


The Pestana Carlton Madeira

“We’ve noticed that tour operators now aim to guarantee rooms on a midterm basis,” he said. “If in the past negotiations were mainly price-based, they’ve now become focused in guaranteeing availability during high season.”


Additional data from shows that the financial crisis did not hurt room rates paid by British vacationers in most of the afflicted countries last year, with averages up by between 2% and 6% in Portugal, Ireland, Spain and Italy. Only Greece registered a decline to -1% compared with 2010.

However, Theotónio said the corporate segment has yielded a noticeable decrease in expenditures, both in business travel expenses and meetings, incentives, conferences and events bookings.

Credit crunch
In Cyprus, the eastern Mediterranean island destination where Britons account for half of the annual 1 million visitors, Cyprus Hotel Association President Harris Loizides said the Eurozone crisis has had several impacts.

“And one of our biggest problems is access to capital,” he said, echoing a complaint common to other European business people, including hoteliers.

“Because of Cyprus’ close financial relationship with Greek banks, interest rates are at 8.5%, which is much too high. No new hotels are going up, and the only investment taking place is in renovating older properties,” Loizides said.

Pestana’s expansion is primarily focused outside of the troubled regions, although Theotónio said the group is feeling the ripples of volatility throughout Europe.

“Our expansion projects are placed on other latitudes, namely America and the European capitals, and we have acquired other structures, management or lease contracts,” he said. “That means that the rhythm’s changed, but we have major projects in our pipeline.”

US affected
The European crisis also might have a significant impact on the business travel initiated from the United States, according to a recent report by the Global Business Travel Association, which identified three separate scenarios for the debt crisis:

1) Baseline/current scenario: An already-expected mini recession in Europe would be short lived and result in continued growth in U.S. business travel spending at $263.billion and $277 billion in 2012 and 2013, respectively.

2) Moderate scenario: A prolonged European recession would result in travel growth flattening with a reduction in spend of almost $40 billion (-7%) and around 42 million trips (-5%) between 2012 and 2013.

3) Severe/extreme scenario: Widespread debt and banking failures across the Eurozone and possible dissolution of the European Union would push spending back to levels not seen since the Great Recession with a reduction of spend of nearly $88 billion (-16%) and trip volume by over 76 million trips (-9%) between 2012 and 2013.

“This data serves as a wakeup call to the entire industry as we watch European policymakers work to contain the debt crisis,” said Michael W. McCormick, GBTA’s executive director and COO.

“We’ve seen a resurgence in business travel investment, meaning slow but strong economic recovery for the U.S.,” he said. “However, in a severe situation where the Eurozone may even break apart, business travel would drop dramatically, severely impeding economic growth overall.”

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