Hoteliers talk currency's effect on Europe, Middle East
 
Hoteliers talk currency's effect on Europe, Middle East
05 JANUARY 2017 8:18 AM

A panel of hoteliers and experts shared their thoughts on how foreign exchange alterations and pressures might play out in the hotel industry in 2017.

GLOBAL REPORT—Several crashes in the Chinese market, the shock that was Brexit in the United Kingdom and European Union and several other factors have all led hoteliers to keep both eyes affixed on stock exchange and central bank ticker tapes.

Were those changes in the major currencies necessary corrections? Do rising prices in one market mean bargains are available in others in a globalized world? Are staycations the new dream trip to Paris? Unless you are a Parisian, of course.

Hotel News Now asked hotel insiders working in the European and Middle Eastern markets whether the turmoil of the last year has resulted in hoteliers jumping off window ledges or basking in greater opportunities.

Puneet Chhatwal,
CEO, Deutsche Hospitality
Kike Sarasola,
CEO, Room Mate Hotels
Philip Wooller,
area director, Middle East and Africa, STR
Javier Vega-Penichet, VP, investments and investor relations, NH Hotel Group

What are the foreign-exchange pressures on your particular market, and how are you trying to offset some of this burden?

Puneet Chhatwal, CEO, Deutsche Hospitality: “We are not worried about foreign-exchange pressures. The way Germany works, very export-driven, a weaker euro helps the economy. Destinations are more affordable all around. If the euro is very strong, we’d see issues with it. And yes, the pound sterling took a nosedive, but it is back, and being where it is now, that makes us more competitive. Deutsche Hospitality has nothing in Britain. We’re trying very hard to get something, but the door is closing. Property prices are not as strong as they have been, but London and Greater London are overheated. Edinburgh and Geneva are the strongest markets I have ever experienced. Outside of those markets, property prices are not a big issue.”

Kike Sarasola, CEO, Room Mate Hotels: “The effects on our consolidated financial statements are that in the profit-and-loss statements, our forecasts show a euro/U.S. dollar parity, positive for our consolidated figures, and regarding the balance sheet, we (don’t have) future investment commitments in the U.S., so no ForEx hedging strategy has been put in place.”

Philip Wooller, area director, Middle East and Africa, STR: “The foreign exchange has always been a big factor for Middle East and Africa. Given the commodity-driven nature of their economies, any fluctuation can impact their balance of trade and by extension their balance of payments. In similar fashion, for the hoteliers, apart from the cost of doing business it affects the equilibrium of domestic versus international business.

“Egypt, for example, unpegged their currency from the U.S. dollar resulting in an almost 50% currency devaluation in November. The majority of the international demand is still not there because of the flight restrictions, so the market has been surviving on domestic tourism. Technically, that should boost international demand. However, domestic guests will find the hotels more expensive, putting the industry under pressure in the short term.

“Particularly in Africa, we see the phenomenon of ‘domestic’ and ‘international’ room pricing for that exact reason. Hoteliers are trying to manage the demand from both sources with tactics like this. In Dubai, most of their international source markets have devaluated against the U.S. dollar and as a result, the dollar-pegged United Arab Emirates dirham. Perhaps that’s one of the causes for the pressure put on Dubai (average daily rates) in the past couple of years.

“Hoteliers are trying to weather the storm by targeting different source markets, adjusting their offerings and revenue strategies to attract the right guests, at the right price, at the right time, with the right acquisition cost. Opportunities arise in times of uncertainty, and it really is up to the hoteliers and their teams to think out of the box in order to benefit.”

Javier Vega-Penichet, VP, investments and investor relations, NH Hotel Group: “As of 2015, 90% of the group’s earnings before interest, tax, depreciation and amortization was generated in Europe (Spain, Italy, Benelux and Central Europe), and that will be the case in 2016. Only the remaining 10% is affected by fluctuations of the Mexican, Argentine and Colombian pesos. In 2016 we have seen a negative ForEx impact in the mentioned currencies, which have had an impact in revenues but mostly attenuated at EBITDA level due to natural hedge with operating expenses.”


Has Brexit and the fall in the pound sterling had an effect, or does the strong U.S. dollar come with advantages?

Chhatwal: “We are a euro company, so no, a strong dollar has no effect, but as our portfolio grows, obviously there will be more currency considerations.”

Sarasola: “Our guest portfolio has a very balanced mixture, so both trends somehow balance out the effect. Around 70% or our foreign guests come from the U.S., followed by the British. Our growth in U.S. travellers compensates the potential decrease in the amount of British, that, by the way, we haven’t appreciated yet.”

Wooller: “Probably not as much as everyone feared. I wouldn’t think it has prevented the British from traveling abroad. Dubai has had 4% more U.K. visitors in October year to date than the same period last year, according to Visit Dubai. What it might have affected is their price sensitivity, average spend and length of stay. More U.K. visitors might shop around for deals and are more likely to consider alternative-accommodation offerings like Airbnb. For leisure travel it wouldn’t be surprising to see a longer time elapsing between the point of holiday inception to the time of booking. Brexit will probably displace some of the demand in MEA to lower cost options, but it won’t make the world stop.”

Vega-Penichet: “There has been limited impact on NH Hotel Group with Brexit. Less than 5% of our customers are from the U.K., there are only four U.K. corporates in our top 100 corporate base in 2015, and our exposure in the U.K. is limited to one leased hotel. A potential capital flow from U.K. to European cities could positively impact NH performance, being a leading European operator in key cities and focused on urban hotels. Regarding the U.S. market, about 5% of our net production comes from customers with U.S. nationality. A stronger U.S. dollar will make U.S. trips less expensive to European cities where NH is a key player.”


Is the rise in revenue stemming from increased travel from such places as the U.S. helped, or is this offset by a rise in cost pressures on your hotel(s)?

Sarasola: “We forecast a better 2017 than 2016, mainly due to a rise in average daily rate in all our hotels (and) a stable cost basis, even in our sales expenses.”

Wooller: “Again, I wouldn’t think it has affected the travel patterns of U.S. visitors but again more their booking behavior and spending habits. Most of the Middle East is pegged to the dollar, so we’ll not see too much of an effect, I would assume, and the Middle East is actually more affordable due to declining ADRs. Hoteliers that might see their cost of business rise will try and control it mostly through operational efficiencies. On a larger scale, consolidation also provides opportunity for operational efficiencies that could boost the bottom line.”

Vega-Penichet: “The standard U.S. customer is willing to pay a higher price for the room compared to domestic clients. After the investment phase executed in our hotels, with a brand segmentation towards upper upscale, we would expect U.S. customers to increase the weight in our revenues generation, supported with a stronger dollar.”


Will ForEx play an increasing role in your P&Ls next year, and are you already seeing an effect?

Chhatwal: “Not really. Not to either question.”

Sarasola: “In a consolidated view, the U.S. dollar/euro evolution will bring a positive impact in our consolidated P&L.”

Wooller: “It probably will play a bigger role than before. Any such fluctuation at the macroeconomic level should eventually find its way up to the guests’ pockets or hotels’ P&Ls. I’m not sure what the effect will be, though, as it largely depends on such criteria as the individual hotel’s operation, location and source of business.”

Vega-Penichet: “In 2017, we expect a negative impact in the Latin-American currencies, although to a lesser degree than we have seen in 2016. We are paying special attention to the Mexican peso, monitoring how the measures of the new incoming government could affect their trade agreements. In relation to ForEx impacts, we are mostly covered as our costs are based in the same currency as our revenue (high absorption ratio from currency depreciations), and in most of the Latin-American currency countries we have some minor debt at hotel level that also acts as a natural hedge.”

 

 

 

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