Soaring Swiss franc hits hoteliers hard
09 APRIL 2015 8:02 AM
The Swiss franc is soaring, making Switzerland an expensive option for foreign tourists. Hoteliers are left suffering the blows.
REPORT FROM SWITZERLAND—Since the Swiss central bank’s decision to ditch its exchange rate control with the euro in mid-January, the country’s hoteliers are being hit hard as foreign tourists snub them due to high prices.
The exchange rate cap, which went into effect in 2011, put a ceiling on the Swiss franc’s maximum value of just over €0.83 ($0.89). Its lifting triggered a 30% surge of the franc against the euro and sent tremors not only through global markets but the tourism and hotel industry. Currently the franc maintains near parity with the euro at 1.04 francs ($1.07/£0.69).
National tourism chiefs and hoteliers believe the situation is serious, with some ski resorts in the Alps reportedly forced to slash prices by up to 20% to absorb the shock of the disadvantageous exchange rate and woo tourists frightened off by spiraling prices for everything from a hotel bed to a beer or burger and chips.
During the first two months of the year, occupancy in Switzerland was down 0.4% to 56.7%, average daily rate was down 2.7% to 251.26 francs ($258.88) and revenue per available room was down 3.1% to 142.45 francs ($146.77), according to data from STR Global, sister company of Hotel News Now.
According to the Swiss Tourism Federation, the umbrella association for the industry, hotels fit within one of the few industries which can’t benefit from a bolstered franc. “Tourism is being affected by exchange rate movements more than any other industry,” it said in a statement. A rise of just 1% in the franc’s value translates to between a 0.5% and 1% drop in overnight stays, said the federation, with alpine and rural tourism hit hardest.
The outlook is bleak
With increasingly less bookings and more cancellations from foreign tourists in the Alps over past weeks, Jürg Schmid, director of Switzerland Tourism, feels the outlook is bleak.
“The appreciation of the Swiss franc has massive implications particularly for alpine and rural tourism. They do not profit from the more stable business tourism,” he said. Business tourists, he added, account for two-thirds of overnight stays in the country’s major cities.
The organization foresees a decline of up to 17% in overnight stays in traditional tourist mountain areas during the next two years if the euro exchange rate sticks to around 1.05 francs ($1.09).
Andreas Züllig, president of the Swiss hotel association Hotelleriesuisse, shared a similar outlook. He fears the strong franc will speed up the extinction of small, family-run rural hotels—a phenomenon that has been happening since 2010, as tourists favor shorter city stays and day trips to the mountains. In that time the total number of hotels in Switzerland had slid by about 10%—from 5,500 to 5,000—he said, with city hotels, particularly upscale properties, the beneficiaries.
“Most hotel losses have been in alpine regions, while the urban hotels have been full,” he said. “Now we expect this trend to accelerate."
The troubles for Swiss hotels might only have just begun, with the bigger test coming during the busy summer months.
According to Eurostat data, some 2.5 million roomnights are booked by foreigners per month in summer. That’s 70% more roomnights than during the peak ski season, reports Reuters.
In major cities, hoteliers are nervous about what’s in store. Already notable drops in bookings at 4-star hotels indicate the luxury sector is less waterproof to the crisis than some believe.
Jörg Arnold, GM of Zurich’s 650-year old Storchen overlooking the Limmat river, said the signs so far are not good after such a strong performance in 2014.
“We thought after 2012 when the euro dropped from 1.58 to 1.20 Swiss francs ($1.64 to $1.24) but was stabilized by the national bank we would be back on track. But with (the 15 January decision by the central bank), we are right back in the same position all over again,” Arnold said.
On top of losing foreign tourists, Arnold said hotels are losing vacationing Swiss who are being lured to neighboring countries where they get much better value for money.
On his Twitter account, Swiss Tourism’s Jürg Schmid urged his fellow Swiss to take holidays at home to help soften the blow of drops in foreign tourists. But according to local news sources, many Swiss are snubbing domestic ski slopes for Austrian ones.
Now Arnold fears a repeat at urban hotels.
“The difference is already being felt in the cities as the Swiss are not only going shopping in the Eurozone but increasingly spending their vacations there as they save up to 15(%) to 20%,” he said. “So already we are missing out on the frequency of leisure guests in Zurich.”
At resort towns in the Ticino region near the Italian border, it’s much the same story, Arnold said.
“At our second hotel in Ascona, the manager of Castello del Sole has big troubles to fill his rooms though the weather forecast there is beautiful,” Arnold said.
Arnold said the hotelier’s response is to cut costs rather than room prices and focus on improvements.
“We are not moaning as we are entrepreneurs and know what we must do. We have to find more ways to cut our high costs, with more efficiency, better productivity, more cooperation’s to share services, etc.”
As Switzerland’s biggest market, Germany, continues to dwindle, the swell in Asian guests is hoped to fill in the gap. The national tourism office says Asian overnight stays tolled at a record 4 million in 2014, a year-on-year increase of 9.9%.
Still it’s city hotels which stand to benefit most, Schmid said. “The mountain regions are much more dependent on European guests who are much more sensitive to costs.”
Christine Waelti, manager of marketing and communications from Basel Tourism, said business tourism is definitely helping Switzerland’s biggest city sail through the crisis, with overnights by foreign tourists in the first months of 2015 slightly up from the same time last year at about 70,000.
“As a destination with a lot of business, travel currency fluctuations are not as crucial for us than for alpine destinations,” she said.
It is too early to tell whether the widespread reluctance to cut profit margins will only price Swiss hotels out of the market more.