GLOBAL REPORT—The global hotel industry set a new earnings record in 2011, surpassing its previous peak in 2008 by 2.2%, but economic and political instability around the world could deliver different news for 2012.
Driven by the resurgence in business travel, the global hotel industry’s revenues grew 9% in 2011 over the previous year, yielding a total of $457 billion, according to research from Euromonitor International.
The London-based research company outlined the best and worst performing countries in comparison to their 2010 sales. The top five markets to see year-over-year increases were:
• the United States (+$7.4 billion);
• China (+$7.2 billion);
• France (+$2.6 billion);
• Italy (+$2.2 billion); and
• Spain (+$1.7 billion).
The bottom five markets to see year-over-year decreases were:
• Egypt (-$1.8 billion);
• Venezuela (-$0.5 billion);
• Turkey (-$0.4 billion);
• Algeria ($-0.01 billion); and
• Syria (-$0.01 billion).
Trouble at the top
The top two markets to report increases in sales, the U.S. and China, continue to be powerhouses in 2012, but the remaining top markets are not experiencing much luck this year.
Initial signs of a debt crisis in the eurozone last year did not stop hotels in Italy, France and Spain from making money during 2011, but it’s a different story this year, said Michelle Grant, travel and tourism analyst for Euromonitor International.
“The situation is much darker than it was in 2011,” she said.
Italy, for example, was one of the top markets in 2011, but research data is already showing the market will not be bringing in much money in 2012, Grant said. “The demand for hotel beds declined by 5% for the year based on preliminary estimates from the Bank of Italy.”
Ezio Poinelli, director of HVS Italy, also observed softer performance of the Italian market. “This year will not repeat performance of 2011 … mainly due to the decrease in demand from Italian guests,” he said.
Hoteliers are discounting more than they were in previous years, he said, mainly in markets where Italians are the predominant guests.
That said, not all of Italy is suffering. Hotels that cater to the strong growth in Russian, Swiss and Japanese arrivals “are probably going to do OK,” Grant said.
Milan, Venice and Rome, strong tourist destinations, will probably see a decline in sales but have not been impacted as badly as the rest of the country, she said.
France and Spain might also see some declines, Grant said. “In general, I think a lot of people are concerned about the state of the euro and (whether that) economic … union will survive.”
A slow rebound
The bottom five markets, mainly represented in the Middle East/Africa region—Egypt, Algeria and Syria—will struggle to recover to stronger levels of earnings, Grant said. “It really is contingent on stability.”
Egypt saw a bit of a rebound after the revolution ended in March of last year, but tourism was somewhat curbed when protests and violence broke out again in November, she said.
“Even over the next five years, we don’t expect the market to recover to its previous peaks. Egypt had a market of over $3.5 billion in 2010. By the end of 2016, we only see about $2.5 billion.”
“The pricing discounts that went on were pretty steep, and to climb out of that when their key source markets were European, it will be hard,” Grant said.
Tourism is Syria, which boomed in the past few years because of Levant region, has completely reversed, said Chiheb Ben-Mahmoud, executive VP and head of hotel advisory at Jones Lang LaSalle Hotels’ Middle East/Africa division.
The unrest in Syria and the lack of stability has decimated tourism in the country, and as the fighting continues, countries such as the U.S. are warning its citizens against travel to Syria.
Unrest has also hindered tourism in Algeria, Ben-Mahmoud said.
Further, Algeria has one of the highest tourism potentials in Africa, he said, but years of armed unrest have detracted the focus from tourism.
The outliers
Venezuela and Turkey were the two outliers of the bottom performing markets in 2012 because their decreases in sales were not because of political or economic instability.
Venezuela experienced its decrease because of an exchange rate issue, Grant said.
“The hotels there are struggling to keep up with the high inflation … and it’s not just the hotels that are suffering,” she said. The problem is affecting other industries, as well.”
Turkey’s decrease in hotel sales could be attributed to the strong increase in room supply, said Félix Murillo, GM of the Four Seasons Hotel Istanbul at Sultanahmet. However, Murillo said hoteliers in the region haven’t seen a change in performance and are continuing to build new hotels.
Four Seasons Hotels & Resorts is working on adding to its supply in Turkey, he said. The company has already started construction on a hotel in the city of Bodrum. “It reflects … how things are going in Turkey in general.”
“Istanbul and the coast are doing well,” Murillo said.
To a certain extent, the country has benefitted from the effects of the Arab Spring. In the past, if anything negative occurred in the Middle East, it immediately affected the Turkish hotel markets. “That is not happening today … There is an increasing knowledge of Istanbul and Turkey and how far it is from the Middle East,” he said.
A rising star
Although not in the top five markets in terms of increased sales, Grant noted growth in Singapore was astounding during 2011.
“To be technical, in percentage growth terms, Singapore was the second fastest growing. It was only behind Guadeloupe, which saw a 52% increase thanks to (increased tourism).”
In absolute terms, Singapore was only a $4-billion market, but the amount of growth for its size is notable. “In two years, the size of the Singapore market more than doubled,” Grant said.
That growth is mainly driven by Southeast Asian tourists who want to experience the newly built casinos in Singapore, which are not allowed in Indonesia or China.
Grant’s advice? “Build it, and they will come to Singapore.”
