What recovery may look like for Caribbean, LatAm hotels
 
What recovery may look like for Caribbean, LatAm hotels
09 SEPTEMBER 2020 8:05 AM

The coronavirus pandemic has significantly disrupted the global hotel industry, but industry and regional experts see a way through a recovery for hotels in the Caribbean and Latin America.

GLOBAL REPORT—A slow but steady return of leisure travel and growing cooperation among competitors offers some hope to the hotel industry in the Caribbean and Latin America still struggling with the drop in demand brought about by the coronavirus pandemic.

During the “Regional update – CHTA & HOLA co-chairs” opening panel of the online 2020 CHRIS+HOLA Connect conference, industry and regional experts shared their perspectives on the hotel industry in Caribbean and Latin American countries.

Road to recovery
Recovery prospects for hotels in Mexico will be determined by local demand as well as the travel landscape internationally, said John McCarthy, executive chairman and partner at Leisure Partners. Locally, that can be further divided into drive-to and fly-to destinations.

“The truth is, we’re already seeing quite a good reaction to drive-to destinations, especially people who are traveling within what they call ‘The Bubble,’” he said.

Destinations that previously had gone out of fashion are seeing an enormous comeback, he said. This includes Acapulco, which is within driving distance of Mexico City and its 20 million inhabitants.

Similarly, international travel can be broken into long-haul and short-haul travel, McCarthy said. International flights are coming in with limited capacity because of health and safety regulations, but he said he expects leisure travel will boost inbound flights to 60% or 70% of previous levels by winter of next year.

“The business side of it is a whole different story,” he said. “On the business side, people will only travel if they have to absolutely travel. This is especially the case with long-haul.”

Even with a vaccine or cure, people will be reticent to get on a long flight, but may be more open to a three- to four-hour flight, he said.

It’s going to take time for traveler consumer confidence to return to anything like it was before the pandemic, said Frank Comito, CEO and director general at the Caribbean Hotel & Tourism Association. The recovery is shaping up to be like a Nike swoosh, slow and steady similar to after the 2008 and 2009 recession, he said.

There are early signs of a slow return to travel as consumers are becoming more comfortable about their health and safety, particularly at the luxury end, he said. Travel is also growing within the Caribbean and its bubble, which includes nearby countries such as Belize that have done well with their own domestic travel program.

Having an effective vaccine and mass vaccinations by early winter would be a game-changer, but travel and hotel occupancy still likely won’t approach pre-pandemic levels for years, Comito said.

“We’re looking at really two headwinds here: the virus and a recession,” he said. “How severe that recession will be, we just don’t know yet, but the U.S. Consumer Confidence Index is at a six-year low. The effects of a global recession are just beginning to be followed, and, if that cycle holds up, it’ll take years before we climb our way out of that.”

Hotels must find ways to maximize revenue while continually figuring out how to operate on margins and profitability until there are substantial improvements on both fronts of the crisis, he said.

The recovery will vary widely by individual markets, and more broad examination will be less useful, said Raul Calvet, CEO of Calvet & Associates.

Questions the industry face include not when but how the revenue-per-available-room recovery will behave, how much cash reserves for working capital and CapEx will be available, and how property valuations will be compared to operational results.

“How the economies where our guests originate are recovering—that’s paramount,” he said.

For countries that depend on U.S. travel demand, occupancy likely will recover in the third quarter of 2021, he said. Countries with more domestic travel have an opportunity for a shorter recovery period.

He said most recovery predictions are too negative; instead of a 24- to 30-month recovery, he expects a 12- to 18-month rebound.

Lessons for the industry
Cash is king during this crisis, Calvet said. Financial strategies must consider longer periods of reduced income. That means cost-engineering processes to reduce operating expenses, rethinking employment practices and cultures, renegotiating franchise and management contracts and trying to achieve economies of scale in purchasing.

A new financial system could harmonize Central America and create a larger economy of scale for financial funding of hotels, he said.

In the Caribbean, there’s growing interdependence among the different governments, which recognize how critical tourism is to socioeconomic development and are supportive of policies and initiatives that will accelerate the industry’s return, Comito said.

“Basically more businesses recognize that despite our competitiveness, we’re all in this together as nations and an industry, and we need to work together,” he said, adding cooperation on health and safety protocols are helping build confidence in hotels for both employees and travelers.

“We need to capitalize on the opportunity that this crisis presents really to be able to work better together for our mutual benefit.”

The industry was vulnerable and unprepared for something like this, McCarthy said. Some companies will come out of this, but many others will not. The recovery will be complicated for hotel owners and banks.

Good leadership is important, and that’s not specific to the industry. The Chinese found the fine balance between saving lives and saving livelihoods, he said.

“In poor countries, like Mexico, India and a lot of Central America, you just can’t shut down these countries, because people eat from what they do every day of their life, and a lot of those people are precisely in the tourism industry,” he said.

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