Can Spanish tourism survive a second Covid summer season?

Gabriel Escarrer hopes foreign tourists will return to Spain this year – but he knows how badly his company and industry will suffer if they don’t.

As managing director of Meliá Hotels International, the group of 326 hotels valued at 1.4 billion euros and proud of its roots in the beach resort, Escarrer is aware of the wounds left by the drastically shortened summer season last year.

“If we lose this summer, we would speak of practically zero activity from October 2019, if [travel agent] Thomas Cook collapsed by June 2022, ”he said, noting that around half of Spain’s tourism revenue is usually generated between June and September. “It would be devastating to the structure of the tourism industry.”

According to the country’s main business association, around 500 Spanish hotels closed last year – and many more would collapse with the loss of a second consecutive season.

Such difficulties are particularly significant in Spain, the second most popular travel destination in the world, whose economy contracted by 11 percent over the past year.

In a normal year, the industry accounts for 12 percent of GDP and 13 percent of employment. In the words of Ramón Aragonés, Managing Director of the NH Hotel Group, the urban hotel chain: “Tourism is the fuel of Spain.”

As the sector grapples with the impact of recent travel restrictions in the EU, the UK and the US, both Escarrer and Aragonés have recognized that people are more likely to travel to their own country first before venturing abroad. But their two companies make very different bets. Meliá believes foreign tourists will want sun and sea this summer; NH that the main theme will be “Tourism Nearby” – traveling closer to home.

“We know that 2021 will be a difficult year and that we have complicated months ahead of us, but there is prospect for a medium-term recovery,” said Aragonés, whose 360 ​​hotel company also has a market value of 1.4 billion euros , a third lower than before the pandemic. “The numbers for 2021 will be better than 2020, and 2022 will likely be closer to 2019, with a full return in 2023.”

The crucial question is the pace of recovery, which is determined by infection rates, vaccinations, and politics. And until that happens, the tourism industry will continue to bleed money. As of the third quarter of last year, Meliá burned about 34 million euros a month and NH about 25 million euros. Things are even tougher now with both groups keeping about half of their hotels closed.

“I didn’t think the third wave would hit us so hard,” said Escarrer, adding, “the first quarter [of 2021] will likely be very bad. . . The worst since the second quarter of last year when there was a very tough lockdown. “

An empty square in Barcelona, ​​Spain © Nacho Doce / Reuters

A closed entrance to a hotel in Barcelona © Finbarr O’Reilly / Getty

The first nine months of last year were tough enough for his company. Meliá’s sales fell by 69 percent to 430 million euros compared to the same period last year, and the group fell to a net loss of 485 million euros. Net financial debt excluding leasing liabilities increased by € 533 million to € 1.1 billion.

During the same period, NH sales fell by 64 percent to 458 million euros, which corresponds to a net loss of 295 million euros. Net financial debt rose by EUR 377 million to EUR 556 million, despite Aragonés’ arguments that his company’s liquidity position has improved and its room for maneuver has been increased by pre-crisis debt reduction measures. Even so, he plans to sell assets this year to further reduce them.

Both groups say their holdings of cash and other cash equivalents, which stood at around EUR 440 million and EUR 485 million at the end of September, respectively, will enable them to overcome this year’s troubles.

But their problems are only part of a much more common malaise. 2020 was for sure the worst in the history of the tourism industry. According to the World Tourism OrganizationAs a UN agency, 1 billion fewer people traveled abroad than in the previous year – a decrease of 74 percent compared to a decrease of 4 percent in 2009 after the financial crisis. The pandemic is calculated to have reduced the sector’s revenues by $ 1.3 billion and put between 100 and 120 million jobs directly at risk.

But both Escarrer and Aragonés hope the current off-season restrictions will help bring infections under control and pave the way for recovery.

The Meliá boss believes foreign tourists will be returning by July and expects healthy demand for his beachfront hotels, particularly from the UK, which has traditionally been Spain’s largest source of tourists.

“In the summer when we start to see group immunity [because of vaccinations]We expect a change in the third quarter due to reservations: Europeans will travel to Europe, Americans to America and Asians to Asia. . . although I don’t expect much long-distance tourism, ”he said.

Gabriel Escarrer from Meliá Hotels © Soni Martinez

Ramón Aragonés, Managing Director of the NH Hotel Group © José A Rojo

“We’re in places that aren’t that urban, where there’s no such thing for business travelers, where it’s more about vacation,” he added, noting that videoconferencing has largely replaced business travel and that this may be a long time . Change of term. “Therefore I am convinced that we are one of the companies [in the industry] that will end the crisis first. ”

In contrast, Aragonés expects that this summer will be all about domestic tourism and therefore NH’s chain of city hotels, which typically earn half of their income from business travelers, will be well positioned to take advantage of it.

“The first thing that will recover is city breaks, because the easiest thing is to just get in a car and spend the weekend in a hotel,” he said. “It is very likely that many people will stay in their own countries this summer, but that might suit us.”

Indeed, UK travel agents have reported that customers are postponing summer bookings for overseas travel until October.

Aragonés added that there will be exceptions – those over 70, for example, who are soon to be vaccinated on a massive scale in countries like the UK, “will be desperate to get out after being virtually incarcerated for a year [and] could be a very good potential destination in May or June ”.

But if this summer does indeed involve a large-scale substitution of foreign tourists for domestic tourists, it is bad news for Spain as a whole.

“In the case of Spain, the ability of domestic tourism to compensate for external tourism is relatively low,” noted Pablo Hernández de Cos, the governor of the country’s central bank, recently.

He added that the difference between what foreign tourists usually spend in Spain and what Spanish tourists usually spend abroad is more than 3 percent of GDP – a gap three times that of Italy.

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Both Meliá and NH indicate that most of their business is outside of Spain – almost two-thirds with Meliá and about three-quarters with NH. “If Spain were 100 percent represented, the truth would be worrying,” said Aragonés. “The problem in Spain is that the pandemic is likely to be accompanied by a very predictable economic crisis.”

Both executives are demanding that Spain spend part of the € 140 billion it expects from the EU’s Coronavirus Recovery Fund to revitalize the tourism industry – and that the bloc step up its relatively slow vaccination campaign; About 3 percent of Spaniards have been vaccinated so far, compared to about 18 percent in the UK. Both hoteliers would also like new international measures such as health passports to make it easier for the countries to reopen.

“If 50 to 60 percent of the population is not vaccinated before summer, Spain will not be considered a safe travel destination – that is the problem,” said Aragonés. “But Israel will have a very good summer because it is considered safe, the countries of the Middle East. [such as] Dubai will be in great demand because they vaccinate massively. . Everything, everything will depend on the vaccines. “

Additional reporting from Alice Hancock