GLOBAL REPORT—As the economic crisis in Europe continues to weaken the value of the euro, hoteliers are concerned about the possible effects the depreciated currency could have on the hotel industry.
“Hospitality is usually among the first sectors to suffer when the economy turns south … You know when the economy is going down as a consumer, you start getting nervous and anxious about it. You start cutting back on things you would consider a luxury item—and travel is one of those items,” said Emin Hajiyev, assistant director of the Economic Forecasting Center at Georgia State University.
Europeans traveling to the U.S. might opt to find less expensive hotels upon realizing the overall price of a trip has increased because they are trading their euros at an appreciated value, Hajiyev said. “(They) will have less money to spend coming to the U.S.”
The weakening euro itself, however, will not have as much of an impact on the industry as overall consumer confidence, according to Adam Weissenberg, vice chairman and global leader of the Travel Hospitality & Leisure segment at Deloitte & Touche LLP.
“If I’m someone sitting in Spain, Portugal or Greece and I was planning a trip to Disneyworld, I don’t know if I’d say, ‘Gee, what’s happening to the euro?’ rather than, ‘Look at what’s going on in the economy,’” Weissenberg said.
Deloitte & Touche LLP
“There’s lots of concern about what’s going on in the financial markets, and that’s what is affecting behavior,” he added.
Currency and profits
Fabrizio Trimarchi, VP of Jones Lang LaSalle Hotels in Italy, said hoteliers in Italy have found a strong correlation between the value of currency and hotel profits.
After going through several upswings and downturns in the economic cycle, hoteliers in the country have noticed that when the euro is strong, leisure travel spend from American travelers reduces. “The consumption from the U.S. traveler directly depends on the power of the currency,” he said.
Now that the U.S. dollar is gaining strength against the euro, Weissenberg said he is seeing more Americans taking last-minute trips to Europe because they expect it will be a cheaper trip.
But will it really?
“The chain hotels … are still expensive,” Weissenberg said. There is some discounting going on, but there are many hoteliers who have been able to hold on to their rates during the busy summer travel season, he said.
In Italy, “we are experiencing that prices (have become) lower in the last two or three months,” Trimarchi said.
European hoteliers are feeling the effects of the weakening euro in day-to-day operations, he said. The prices of consumption goods and supplies hoteliers purchase are increasing as the value of the euro continues to decrease.
“This always reflects changes in the profit and loss (statement),” he said.
The transactions market also is suffering because of the weakened economy, Trimarchi said. “We are experiencing a very low level of transactions at this moment in our country. We understand that the same situation is going on in other southern European countries like France and Spain.”
Although the United Kingdom uses the pound as its currency, the region also is being impacted by the unstable euro. A lot of the capital that flows into the U.K. comes from other European nations, Trimarchi said.
Right now, there is no alignment between the sellers’ asking prices and what buyers are willing to pay, he said.
“We will see probably that in the next six to 12 months that this gap will be reduced.”