Italy (and Europe) hotel results during the pandemic and the second wave “threat”
As mentioned in previous articles, here we are, reporting with great pleasure the results of August 2020, which show that hotels in Italy have surpassed 2019 levels for the first time post-Covid on all key parameters (occupancy, RevPAR, ADR).
The results displayed in the graph, based on a sample of 300 facilities (hotels ranging from 3 to 4 stars, 15 to 200 rooms) located in the national territory and currently employing our Revenue Management software Revolution Plus and our consulting services, show that the national occupancy and RevPAR (revenue per available room) values have surpassed those recorded during the same month in 2019.
The sample comprises hotels situated in multiple locations, including seaside (130), art towns/leisure-oriented cities (60), mountain (50), lakeside (30), business-oriented cities (30).
This sample distribution is in line with the ratios of the overall accommodation offering between the above-mentioned clusters at a national level (with Italy having nearly 8.000 km. of coastline, there is a clear predominance of seaside hotels).
At an overall nationwide level, we record an increase compared to August 2019 by 1 point for occupancy (88,65% vs 87,76%), 3 euro for RevPAR (110,40 € vs 107,06 €), 5 euro for Average Daily Rate or ADR (126,71 € vs 121,99 €).
Seaside, mountain, lakeside
When analyzing the data in depth, it is apparent that these national results are evidently driven by seaside, mountain and lakeside locations that are primarily holiday destinations, and which have relied on a very strong domestic demand (over 80%).
For these destinations, the decrease of foreign travelers has been offset by an increase of domestic Italian travelers (if foreigners were not able to travel to Italy, it was likewise true that Italians could not travel abroad), a trend that each country in the world has seen during these months of pandemic.
This is the clear demonstration that the properties in these types of locations can achieve excellent results even when airports are closed and there are no foreign travelers, provided that they are able to adopt the proper sales strategy in order to attract this kind of domestic segment.
These destinations have never really suffered from the crisis judging by the good results of June and July as well.
Clearly the lockdown has obliged these properties to open later than usual (June rather than April or May in many cases), but the excellent bookings pace for September (on which we will keep you posted in next articles) leads us to think that the season, weather and climate permitting, could end later than usual (in October or November, also taking advantage of the consistent and progressive increase of European travellers in Italy) allowing these hotels to recoup the lost revenues of the lockdown months and closing the season by potentially equalizing or topping the total revenue of 2019.
As for cities, clearly the situation is more complicated, being the only type of destination that really suffered the consequences of the pandemic and the lockdown.
Business and leisure oriented cities (Rome, Florence, Milan, Turin, etc.), continued to experience a further decline in RevPAR compared to 2019, -22% for business-oriented cities and -24% for leisure-oriented cities (a decline attributable to the decreased presence of foreigners, as previously mentioned, on account of travel restrictions, absence of conventions and events, etc.) albeit to a lesser extent than in the past months.
As a matter of fact, note the major leap forward in these values (occupancy and RevPAR) compared to prior months. Suffice it to say that occupancy in art towns/leisure-oriented cities has risen from 52% in July (average calculated only on open hotels) to 72% in August.
To be clear, these results do not in any way indicate that the cities are once again brimming with visitors as they were in 2019. It is obvious to anyone that in the case of major cities demand levels (measured in terms of presences and arrivals) remain much lower than those of 2019.
However these significant improvements in cities, compared to previous months, can be explained by a number of reasons.
Firstly, the sharp increase of foreign European demand compared to previous months (which has a more determining impact on this type of destination as compared to coastal, mountain or lakeside destinations).
This increase is clearly linked to the reinstatement and frequency of flights within Europe, as well as a heightened sense of serenity and security on the part of the travelers with regard to cross-border travel.
Indeed, the chart below shows an interesting mix of nationalities (entirely dominated by Europeans) for international cities such as Rome, Milan, Florence, Venice, Turin, Naples.
These are foreign business customers (who, in any case, travel between various countries for business purposes), but also leisure travelers who take advantage of this particular moment in history to visit cities renowned all over the world at prices which are likely to be more advantageous, finding them less crowded than usual, in prime weather conditions, therefore fully enjoying their beauty.
Another aspect that has certainly impacted the excellent performance recorded by cities is the reduction in supply and competition in terms of number of hotels available, given that a fair percentage of city hotels (at least between 25 and 30% of the total accommodation offering as reported by STR, the most reliable benchmark company in the hotel industry, with 68.000 hotels in 180 countries worldwide) has not yet reopened since the eruption of the pandemic (this percentage coincides with what visible on Booking.com by doing some simple research by destination).
This means that the drop in demand compared to 2019 was partly offset by a decline in supply and competition.
Therefore, those hotels which have opted to remain open over the past few months, clearly adopting an effective sales strategy and taking advantage of the reduced competition, have achieved these excellent levels in August.
We are aware that from September onwards, the supply and competition will increase because a percentage of hotels will reopen (whereas a certain percentage may never reopen), but we expect that starting September, demand will also increase simultaneously due to the resumption of events and conventions, in addition to a gradual and natural shift of the climatic and seasonal preferences of leisure travelers from seaside and mountain destinations to city destinations, which will clearly experience a large concentration of visitors during weekends and a very short booking window (in this post-covid period, as reported also by Booking.com, more than 50% of bookings for city hotels materialize in the booking window 0-7 days).
In any event, these results are extremely positive when compared to the catastrophic predictions about tourism made by industry experts and insiders.
Also because if we consider that, statistically speaking, break-even point is reached at an occupancy range hovering between 30% and 60%, we can safely describe the levels of occupancy and RevPAR reached in August as sustainable and economically profitable for city hotels.
Furthermore, these results are in line with the general recovery of the hospitality and lodging industry in Europe (which rose in August, reaching 45% occupancy levels for the first time since the start of the pandemic, and at this pace of continuous growth we might see within the end of the year the standard levels of occupancy reached in Europe during pre-covid times, which hover around 70%).
These numbers certainly bode well in view of the coming months, where the trend seems to be quite promising and regarding which we will keep you posted in the next few articles.
The second wave “threat” and the differences with the first wave
Clearly, now that the recovery of the tourism sector and the hospitality industry has been clearly and indisputably established, at least within Europe (as certified by STR, Booking.com, Expedia and other tourism institutions), many are wondering about the impact that the so-called “second wave”, fueled by a certain level of media terrorism, will have on the tourism and hospitality industry.
The truth is that there are abysmal differences, from a scientific, medical and mathematical viewpoint, between the first and the second wave.
And, although we now find ourselves in the midst of the second wave all across Europe (no country excluded), seeing as cases have been rising daily and will continue to rise, it is highly unlikely that the second wave will have the same devastating impact that the first wave had on the tourism industry.
For a number of reasons.
First of all, there is no doubt that Europe is much safer now that cases are rising slowly (albeit effectively traced and isolated) than it was in January and February, when they were increasing exponentially without anyone’s knowledge, thus causing the disaster in March and April, with which we are all familiar.
On the matter of Covid-related hospital/ICU admissions and deaths, as shown in the graphs below, (source: Italian Ministry of Health) at the present time it is appropriate to speak of a flatter, lower curve, rather than a true and proper second wave.
Much has changed between the first wave of February/March and this second European wave.
Firstly, during the first wave, before the first confirmed cases were identified, no one in Europe and in the world was truly prepared and equipped: health systems, hospitals, governments, and citizens alike.
The diagnostics were surely inefficient (to compound matters further, a seasonal flu with matching symptoms was circulating at the time), the testing system only applied to those experiencing symptoms, neglecting the vast number of undetected and uncounted asymptomatic cases, and individual protective measures were insufficient.
Also, the population was entirely unaware of the risks posed by the virus, as we did not have the wealth of information and certainties that we currently possess.
In short, a whole set of factors which combined together led to the health emergency in March and April, with many hospitals under considerable strain and unable to treat everyone.
Conversely, what we are witnessing today is a situation in which the diagnostics, tracing and isolation systems have taken huge steps forward (and will certainly continue to improve further).
Hospitals have precise protocols to manage the situation and possible spikes in cases, there is a higher number of equipped beds and wards, and many more protective systems in place.
Treatments and therapies have improved.
Every public or private activity is subject to safety protocols to curb the risk of transmission.
We are also facing a situation in which individuals tend to follow a set of rules and behaviors (mask, social distancing, etc.) aimed at reducing to a minimum the risk of contagion.
If we compare the case count that we were seeing in March and April with the current ones, huge differences emerge.
Although the case counts in March and April were significantly understated (according to a recent survey conducted by the Ministry of Health and ISTAT based on serological tests, the percentage of the population exposed to the virus was six times higher than official figures during March and April), today we are seeing entirely different proportions and magnitudes.
While the highest official figure of daily infected people in Italy during the first wave of March amounted to 6557 (but it was probably 6 times higher, so approximately 40.000) – incidentally concentrated in very few areas – case numbers currently amount to a thousand per day on average, for the most part evenly distributed throughout the national territory.
Moreover, the rate at which the virus is spreading is completely different.
If we compare these two situations, it is clear that in January and February, when the lockdown had not yet been implemented and 100% of the population was not following anti-Covid rules simply because those rules did not exist yet, and we had tens of thousands of unidentified positive cases circulating freely and undetected, the propagation speed of the virus was at least ten times faster than it is today, when (almost) all people are following distancing and protection measures, and the diagnostics/tracing/isolation procedures are significantly better than the ones in place during January and February.
In addition, a higher number of swab tests are being conducted today compared to March and April (in August, the net daily swab test count, i.e. first-time tests performed on previously untested individuals, exceeded 50.000 compared to the average of 40.000 recorded in March and April) but the absolute values of positive cases are much lower, so the percentage ratio between positive cases and swab tests performed is much lower (in August we have been observing a monthly average of 2% against the peaks of 30% recorded in March).
As a matter of fact, the more swab tests are conducted, the more asymptomatic cases are detected (and isolated), the more the virus slows down. The increase of swab tests is a key operation to keep the virus under control.
Therefore the increase of positive cases itself is a piece of information that taken alone, and not crossed with other data, doesn’t say absolutely anything. And this increase of cases is not necessarily a bad thing, if we take into account other figures.
In the graph below, the yellow bars represent daily swab tests conducted from March to current date, the black line represents the ratio between new infections and performed swab tests, expressed as a percentage (source: Italian Ministry of Health).
As a child, I was taught that math is not an opinion, and these numbers speak for themselves.
There is also an important aspect that should not be overlooked. Today, hospital and intensive care admissions, as well as deaths, are significantly lower than those reported in March and April.
This is because the average age of people getting infected has almost halved (from 70 to 35) over the last two months, as reported by the Italian Ministry of Health.
This does not mean that elderly people were getting infected before and young people are getting infected now.
Young people were getting infected before as well, during the first wave, but they were not being tested and traced because they were asymptomatic.
Whereas the people being tested were solely those who displayed symptoms and were sick, and who in the vast majority of cases were aged 70 and over.
Today, young people continue to get infected just as before (without detriment to their good health, in 90% of the cases), but they are being identified and traced even when they are asymptomatic, and isolated before they can infect others (first and foremost, parents and grandparents).
While the elderly, being more vulnerable to the risks associated with the virus, tend to adopt more prudent and responsible behaviors, and are getting infected at a much lower rate than before.
This allows hospitals to handle the most serious symptomatic cases with full peace of mind, averting the risk of collapse.
The situation in Italy compared to the first wave (increased swab tests, decrease in the average age of people testing positive, decline in hospital admissions and deaths) is similar to that of other European countries.
Coexisting with the virus
So, what is the reason behind all this media hype over the increase in cases?
Were we really so foolish and naive to think that once freedom of movement would be restored, and regional and national borders reopened, the cases would be reduced to nil over the course of time?
Everyone knew that cases would steadily increase.
Scientists knew this, politicians knew this, the media knew this. Why, then, this (mis)use of strong words by the media such as “concern”, “alarm”, “fear” that work only great mischief for tourism?
And almost envisage the nightmarish and unrealistic hypothesis of a new nationwide total lockdown?
The only way to completely stop the spread of the virus, pending a vaccine, is for every human being to stay locked at home for at least a year and at least 10 meters away from every other human being.
This scenario would obviously lead to poverty, depression, domestic violence, suicides, murders, and far more devastating damages to human health than the ones currently caused by the virus.
Let us come to terms with the fact that cases will continue to increase, it is a given.
But, in the current situation the rate of increase will be such that it will allow for a peaceful coexistence with the virus, and not lead hospitals to the brink of collapse and make a nationwide lockdown necessary once again.
There will continue to be Covid-related hospital admissions (just as there are hospital admissions related to other diseases), but in the meantime other patients will heal and be discharged, thus freeing up bed space; there will be Covid-related deaths (just as there are deaths related to other diseases, as well), but all of this will transpire within the context of an ordinary health situation, no longer definable as an emergency.
This will ensure the implementation of what scientists describe as the only solution possible in a society that does not yet have a vaccine but cannot bring the economy to a standstill for too long in pursuit of the utopian goal of reducing contagion to nil: that is, the adoption of social and individual mitigation measures (face masks, physical distancing, personal hygiene, etc.) that ensure a controlled, slow, gradual, and harmless transmission of the virus to a large segment of the population.
Also, let us not forget that in March the Technical Scientific Committee itself suggested the implementation of differentiated measures between the areas most affected on the epidemiological level and the rest of the country.
So, we know today that the nationwide lockdown in March was probably an excessive measure, albeit acceptable and understandable with a view to gaining time and understanding what was going on (when it comes to health, better to err on the side of caution).
But, if the national lockdown of March, with that data and in that situation, proved to be an excessive measure, a nationwide lockdown now, with the current data and in the current situation, would be a measure void of any logical, medical, scientific and mathematical sense.
Besides having as its sole effect the economic destruction of a country.
Moreover, even the mathematicians of the Institute for Calculus Applications of the CNR (National Research Council), based on the study of mathematical models, exclude a new national lockdown at present conditions, notwithstanding the fact that numbers are increasing and that it is necessary to adopt responsible behaviors at all times.
And even in the unlikely event, say a 0,1% chance (unfortunately a zero-risk scenario is nonexistent), that the government should opt for a new nationwide lockdown, this would be an exclusively political choice, certainly not dictated by health-based or science-based reasons.
This would result in violent uprisings on the part of the people, and we honestly do not see what advantage the government would obtain in opting for this sort of scenario leading to utter impoverishment, violence and destruction of the nation, without there being any real health-based reason.
Of course, when speaking of this virus no one has a crystal ball.
The virus might also mutate and become more aggressive, and one day reports might emerge that the virus affects all body organs and that transmission can occur through water, food, animals and, why not, the Internet and the phone.
In this case, this option should be discussed again.
However, such news must be published in an authoritative scientific journal, not reported by a television show or a pseudo-blog also covering fashion and gossip.
The impact of the second wave on the tourism industry
The truth is that, based on the scientific evidence that we possess to date, by continuing to adopt a responsible approach we are likely to be faced with a set of limited measures and temporary closures, contingent to the eruption of new outbreaks, which may affect a specific business or school, one or more areas/districts of a city, etc.
We will become accustomed for a period of time to not being able to do certain things (such as going out to a club, to a concert or to the stadium) or to doing these things differently.
We might see precautionary measures or temporary restrictions being implemented towards one country or another.
Some countries will close their borders indiscriminately to all foreign countries (as Hungary has decided to do since September) for reasons more related to politics than to health (those acquainted with the political history of the Hungarian Prime Minister can’t help but suspect that this is a political choice).
We might see a certain number of last-minute event cancellations.
We might see, based on the factors specified above, slight and temporary drops in occupancy for a few weeks, followed by equally rapid recoveries.
But nothing which might have such a devastating and sweeping impact on the hotel and tourist industry as the first wave.
After all, the World Health Organization recently stated that this pandemic is likely to be defeated in two years, even if a vaccine becomes available in the meantime.
So, what do we do in the next two years? Do we stop living, working and traveling? Have we gone mad?
The rapid procedure for screening positive cases (with results available within 15-30 minutes), already successfully operating in some Italian and European airports, will likely be extended to all international airports, seaports, and stations, in the near future.
All those countries that to this day remain closed to the outside world (with shuttered airports) due to an excess of caution (such as many Asian countries), will soon realize that the economic damage of shutting down to the outside world is much more devastating than the health hazards posed by a (obviously controlled) reopening of their borders.
Departure and arrival procedures at airports may entail greater-than-normal inconvenience, but in the post-9/11 world people have become accustomed to enduring the aggravating airport experience as a small sacrifice in the name of the fundamental right and freedom to travel. 15-30 minutes of waiting time is really nothing compared to measures such as 14 days quarantine period or, even worse, give up travelling because of airports closed or flights canceled.
Airlines, no longer being forced to fly with middle seats empty, but adopting other strict safety protocols, may fly at full capacity, affording very favorable fares to incentivize travel in periods of low demand.
(Recently I’ve taken several flights across Europe and they were wonderfully flying at 100% capacity and occupancy like good old times).
And all those people who still refuse to travel today for fear of contagion (thank heavens, a minority, if the impressive numbers of August in Europe are anything to judge by) will soon wake up and understand that they cannot allow two years of their life to go to waste on account of a virus whose fatality rate (ratio between deaths and cases) in the last month has dropped sharply to 1,19% (as opposed to 10% in March and April), and whose mortality rate (ratio between deaths and total population) has dropped to an irrelevant 0,0004%.
Love for life, and for the beautiful things in life, like traveling, will triumph over the fear of a silly particle that can be defeated not only with a vaccine, but also by using a bit of brainpower.
It is no coincidence that China, which endured and overcame both the first wave and the second wave (which took place in mid-June, primarily in the capital Beijing, and marked a slight temporary drop in hotel occupancy), is now reporting a 67% national occupancy rate with all hotels fully open, in line with peak levels recorded in 2019, during pre-Covid times.
So much for the doomsayers predicting that tourism would take 4 or 5 years to return to pre-Covid levels.