Accor plans for hazy future as most hotels sit closed
 
Accor plans for hazy future as most hotels sit closed
23 APRIL 2020 8:58 AM

Accor’s top executives said to offset further pain, the firm must prepare for what the future will look like, look to savings and untapped capital, and market to its loyalty members and domestic travelers. The company announced its China hotels have all reopened.

PARIS—Executives at French hotel firm Accor said they are preparing for the recovery from COVID-19 and designing what that recovery might look like.

Speaking on Accor’s first-quarter earnings conference call Wednesday, President and CEO Sébastien Bazin said he and his team have brainstormed “all the mitigation processes we can come up with, thinking outside of the box and turning every stone over.”

“When you do not have the revenue, you have to cut costs, there is no other way,” Bazin said. “Prepare for the rebound and design for it. Be an actor and not a spectator. We will be well-prepared when that day comes,”

He added the hurt from coronavirus likely will be more evident in numbers for April through June.

Preparing for the future is not an easy task when there is not yet a vaccine, he said, and the general public is still waiting on better treatments for the strain of coronavirus to avert deaths until that vaccine is widely administered.

Jean-Jacques Morin, deputy CEO and CFO, said things are changing rapidly.

“The next week is not the week that you planned for the week before,” Morin said.

Bazin said the company is prepared for the worst.

“Since we do not know the shape, the time, the nature of the recovery everything we plan for is for the worse … on a very, very gloomy, pessimistic outcome when it comes to (earnings before interest, tax, depreciation and amortization) and working capital,” Bazin said. “We, of course, hope it will be better.”

Bazin said the firm has “never been closer to owners” than they have been working through this crisis.

Bazin told analysts many Accor hotels are closed or closed for bookings.

“As of last night, 3,142 hotels are closed out of 5,085, (61.8%) of the portfolio,” he said.

Bazin gave exact numbers of closures for each region:

  • Europe—2,330 (76.5%) closed out of 3,045 hotels
  • Asia/Pacific—311 (25.4%) of 1,225
  • South America—277 (69.8%) of 397
  • Africa and Middle East—135 (45.6%) of 296, and
  • North America—89 (73%) of 122

One shoot of good news, Bazin said, is that in China 100% of Accor’s hotels have reopened.

To offset further pain, Bazin said Accor had €2.5 billion ($2.7 billion) of cash reserves at the end of March 2020 and access to a €1.2 billion ($1.3 billion) revolving credit facility that is undrawn and has no covenant testing before June 2021.

In addition, the company has pinpointed a €60-million ($64.7 million) reduction in recurring capital expenditure and suspended approximately €280 million ($301.9 million) in money intended for dividend and share-buyback payments, 25% of which is to be invested along with a special €70-million ($75.5 million) cash reserve to a COVID-19 fund to “assist group employees and individual partners through the crisis.”

Bazin and Morin said 210,000 Accor employees, roughly two-thirds, were furloughed between 22 March and 1 April.

“Furloughing took us 10 days. It was drastic,” Bazin said, who added 60 hotels in the United Kingdom are being used to house medical staff and the homeless.

“Savings will kick in from the end of April,” Morin added.

Home sweet home
Bazin said he expected recovery to occur due to domestic travel, not international, and said Accor is well-placed to benefit from that scenario.

“Recovery will come from domestic guests. … There are 67 million people in France, and they’re not likely to be going anywhere else but France. That (trend) is likely for other countries,” he said.

He added that in key Accor markets the percentage of business derived from domestic guests is as follows: 20% in the United Arab Emirates, 53% in Germany, 64% in France, 66% in the U.K., 70% in Canada, 71% in Indonesia, 75% in Brazil, 82% in China, 83% in Australia and 97% in the U.S.

“In China, we’re seeing better occupancy in brands such as Ibis, Mercure and Novotel than in our higher-end brands, and we’re not accounting for any international clientele in the next months,” Bazin said.

Openings and pipeline
The firm did open hotels, with a combined room count of approximately 8,000, in the first quarter, with one notable asset being the Fairmont San Juan, Puerto Rico, following a conversion, but development no doubt will stumble, Bazin said. Accor executives believe network systems will still grow approximately 3% by the end of 2020.

“That number has obviously been revised downwards, but that is the number we are thinking now. Zero-point-five is what developers call ‘instant noodles,’ those hotels that see survival as being with a brand,” Bazin said, referring to independents that might become Accor-branded hotels.

So far, at least, projects aren’t falling out of the pipeline.

“Some owners have cash restraints, and some building works are being delayed, so numbers might change, but as much as we can see projects are being postponed, not cancelled,” Bazin said.

It is still hard to project overall numbers in a post-COVID-19 world, he said.

“What we cannot see is how many owners will not reopen. … They might not have the means or the will, but under no circumstances will we inject capital into those hotels. We are asset-light,” he said.

Supply numbers might ultimately play out in Accor’s favor, though.

“Many independents will close, which are our major competitors in many markets,” he added.

Bazin and Morin said there is currently no discussion on the reduction of fees from its franchised hotels.

“We do not see fees not being paid. It is something to be obviously monitored over time,” Morin said.

Morin said first-quarter revenue fell 17%, or 15.8% like-for-like, to €768 million ($828 million), and across the group revenue per available room declined by 25.4%.

Regionally, he said, RevPAR in Asia-Pacific fell 33.7%, in Europe by 23.2% and in North America by 22.2%

“A 1% drop in (this quarter’s) RevPAR equals approximately a €28 million ($30.2 million) drop in EBITDA, and we have never used such numbers before in our history,” Morin said.

Bazin added now privately held AccorInvest, of which Accor retains approximately 30% ownership, has enough financing for the foreseeable future with no need for capital injections from the existing shareholder base.

As of press time, Accor stock was trading at €25.97 ($28.02) a share, down approximately 37.8% year to date. The Baird/STR Hotel Stock Index is down 45.16% for the same period.

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