Leisure European Hotel Sector - Covid-19 update: how will the future of European hotels unfold?

We believe the Travel & Leisure industry will continue to face challenges over the coming months. In a UBS Evidence Lab survey, the majority of UK respondents said they don't plan to travel outside of the UK in the next 3-4 months.

01 May 2020

The bar chart shows what percentage of respondents plan have no plans to travel outside their country, a plan to travel to countries within Europe, or a plan to travel to countries outside of Europe.

Challenging times for hoteliers, not just now but also in the future

We think the hotel sector faces an Act of Nature which Acts of Man cannot address through financial aid alone. The challenges will in our view result in changes to travel behaviour such as (1) Reduced travel volumes for several years in both leisure and business; (2) A slower revenue per available room (RevPAR) recovery than has been evident in the past. We expect gradual improvement from June/July and do not see RevPAR returning to 2019 levels over our forecast period (to 2024); (3) Enhanced health and safety measures attention; and (4) Potential consolidation and opportunity for independents to brand.

However, sector likely already pricing in a severe downturn

On average the hotels under our coverage have fallen by 32% YTD and we think that the lost value more than takes into account the new outlook. That said, if there is a second wave of the virus once isolation ends, there are downside scenarios that could suggest a further fall in share prices is warranted. Nevertheless, we think leisure volumes will likely recover more quickly given businesses reducing travel budgets/ exercising  duty  of  care,  greater  likelihood  that  domestic  markets  open  before  international, and increased probability of more staycations.

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