Wouter Geerts, Skift Research
Investigating historical performance data provides a roadmap of what a potential recovery might look like. There is also a wealth of knowledge in the industry as many hoteliers have lived through previous crises. We can learn from them to point the industry in the right direction.
Hoteliers around the world are trying to find a way forward, testing the waters, dealing with conditions never experienced before. Hoteliers have become explorers.
Every explorer needs a map and a compass. In a new Skift Research report launched last week, we investigate historical data on tourism flows, hotel performance, and economic indicators to identify commonalities between today’s situation and past crises. The trodden path of the past helps draw a roadmap towards recovery today. We also tap into the knowledge of hoteliers who have been in similar crises before, to better understand how to prepare for recovery. This provides the compass if you like, pointing hoteliers into the right direction.
Focusing on the past shocks of 9/11 and SARS, our report The Hotel Industry and COVID-19: Lessons From 9/11 and SARS, helps the hotel industry to understand how the current crisis shapes up compared to previous crises of the past decades. It highlights how today’s situation is different, but also provides best practices and learnings to better prepare for once the recovery starts in earnest.
We launched last week the latest report in our Skift Research service, The Hotel Industry and COVID-19: Lessons From 9/11 and SARS. Below is an excerpt from this report, looking at the impact SARS had on the Hong Kong hotel market. Get the full report here to stay ahead of this trend.
MACRO-ECONOMIC AND TOURISM PERFORMANCE COMPARISON
So can the economic performance during and after SARS tell us anything about how the current crisis will play out? It might give a possible indication, although it is still early.
An investigation of quarterly growth of gross domestic product (GDP), visitors, and revenue per available room (RevPAR) shows that RevPAR follows a similar trajectory to GDP and visitor growth. The deepest trough is in Q2 2003, but this is followed by strong growth in Q3. In both quarters, decline and growth of RevPAR was larger than GDP by a factor of 10.
The expectation is that this time around, the impact on hotel performance will be stronger. The latest GDP forecast by the Hong Kong government is between 0.5 percent and -1.5 percent for 2020. Allianz, meanwhile, forecasts -0.6 percent growth. Using the “factor of 10” rule, this would mean around a 6 percent to 15 percent decline in RevPAR for 2020, which seems too optimistic, looking at the data available so far.
The Pacific Asia Travel Association (PATA) estimates arrivals in 2020 will fall by 32 percent in the APAC region. We estimate that Hong Kong will fare slightly better due to its proximity to mainland China, but not much. Our estimate is that RevPAR will be down 30 percent from 2019 figures, which shows what we believe will be a graver impact that this pandemic is having on Hong Kong than previous crises.
Above discussion shows how GDP is a strong indicator of RevPAR, although RevPAR is far more volatile. While there is still much time left in 2020 to improve hotel performance, 2020 is in many ways already a write off.