Hospitality & Consumers : What recovery for the Hotel sector ?

The hotel sectors’ turnaround supposes meeting several conditions, being (1) continued funding of the main players for them to have enough liquidity to tide them through the crisis and (2) controlling the pandemic, enabling (3) the reopening of borders and (4) unrestricted travel. Even then, this turnaround will depend on (5) restoring confidence; ( 6 ) maintaining purchasing power, and ( 7 ) there being powerful economic stimulus. Our multi-factor econometric model capturing GDP growth, international tourist arrivals and a seasonal variation variable successfully explains 75% of variations in Eurozone RevPAR since 2000. Taking into account a 50% decrease in the number of tourists in 2020, our GDP projections out to 2022 and the other variables, we estimate that RevPAR will reach €35 in 2020, €65 in 2021 and €82 in 2022. For France, applying the same approach, we estimate that RevPAR will reach €62 in 2022. Based on our RevPAR projections, we have reworked our earnings estimates and ratios for Accor, Hilton and Marriott, comparing the results obtained with the expectations of the credit rating agencies. Accor appears most at risk of suffering a further one-notch downgrade in 2021. For Marriot t , the risk is more moderate, while Hilton should glide through with ease. The three hotel groups will be in a position to recoup Investment Grade based on 2022 earnings, but that is before taking into account an eventual resumption of their generous shareholder policies. Q2-20 results reported by hotel groups (see our September review of the hotel sector’s Q2 results), show that the recovery is already under way in China and the United States. An analysis of this recovery reveals that it is being driven mainly by the domestic market (80% of hotel nights pre-crisis), as a result first of the comeback in leisure travel, then of business travel. Both countries have benefited from powerful economic stimulus measures. South Korea is treading much the same path. Australia, Japan and the Schengen Area could follow, but only when the second COVID-19 wave raging in these geographies has been brought under control. Hotel groups that stand to benefit from this recovery are first and foremost those present in China and the United States, in preference with exposure to the economy and midscale segments that are performing best post-crisis. In this respect, our view is that Wyndham and IHG have relatively better exposure at both geographical and segment levels , followed by Accor . In the very short term, the risk of developing a second epidemic wave in Europe is likely to slow down, or even thwart, the gradual rise in RevPAR ... but in our opinion, it does not call into question the gradual improvement in group credit from H2-21 (under the assumption of a vaccine against Covid-19) and a return of leverage ratios to below 4x for most hotel groups. In this context, the risk premium offered on the credit market seems attractive from a medium-term perspective . .