Execs in Asia consider realities of prolonged downturn
Execs in Asia consider realities of prolonged downturn
22 OCTOBER 2020 8:38 AM

A new wave of COVID-19 cases in the Asia/Pacific is further dampening demand, lowering revenue and resulting in stricter government legislation, which all strains the region’s hotel business, according to HICAP speakers.

HONG KONG—Earlier in the COVID-19 pandemic, China’s quick recovery seemed to portend a similar quick rebound globally, but the prolonged nature of coronavirus has hotel executives bracing for a longer difficult road ahead.

Asian-based hotel firms and hoteliers see green shoots in some markets, but with extensive international portfolios, the picture remains bleak overall. Sources said that investment capital can afford to be patient, but companies strapped for revenue are in trouble.

Speaking during “Views from the boardroom, round one” at the Hotel Investment Conference Asia Pacific (HICAP), Alan Watts, president of Asia/Pacific at Hilton, said “a lot of people are in a pathway where they really need (COVID-19) to be over.”

“There are more buyers than there are sellers, and that makes a great comment on cash burn,” Watts said.

Panelists said there are interested buyers waiting in the wings, but they seem to be content to stay there.

“What it requires is equity buyers to step up with a long-term view,” said Mike Batchelor, CEO of hotels and hospitality for Asia/Pacific at JLL. “They are rubbing their hands together, saying, ‘We have been waiting 10 years for this time. Let’s go.’”

Operators are concentrating on getting their own houses in order.

“We have the comfort of our parent company (Wharf Holdings Co.), with profitable and sustainable businesses, but it is looking at repurposing assets, office buildings,” said Jennifer Cronin, president of Wharf Hotels, a Hong Kong-based hotel firm with a portfolio that includes nine hotels in mainland China that encompasses three Niccolo Hotels and five Marco Polo-branded hotels.

Wharf Hotels will open another Niccolo asset in Suzhou, China, in April 2021.

This is all a far cry from 2019, which Batchelor said had been a record year for investment in Asia. He quipped that Minor Hotels had been responsible for much of that with its recent buys, including Spain’s NH Hotels.

Dillip Rajakarier, CEO of Minor Hotels and group CEO of Minor International, said he expects COVID-19 will get worse before it gets better, with many markets experiencing second spikes in cases.

“Government help (globally) has been good, but now with the second wave they are under pressure, but in Asia they have not done enough,” he said. “We have been lobbying, especially for (our home base of) Thailand.”

Rajakarier said one of the top to-dos on his list is to make sure that debt and liquidity are in order.

“Banks have been very supportive. We have a revolving credit facility in Europe, which runs out next September, so we renewed it for another three years so that next year we would not have to struggle for funding,” he said. “That happened last week, and, yes, it is more expensive, some 50 basis points higher. We’re looking at all our debts (that mature) over the next three years, reviewing them and pushing them farther down the line.”

He added that in the medium term, his goal is centered on sustaining his business and growing domestic and regional business.

Cronin said the crisis has made her team more resilient and stronger.

“We’re a lean, mean fighting machine. (2020) has made us need to be more so, added on to the political processes in Hong Kong (of 2019). It has strengthened our team and made us even more hands on,” she said.

Watts said despite some good news regarding countries’ GDP numbers, recovery still demands that guests step onto planes once they feel safe.

“People will not take the risk of flying internationally if it requires isolation, a fear of a different regime at the other side. There must be globally agreed protocols,” Watts said.

He added that only 10% of his Asian portfolio remains closed.

“Luxury and island-luxury (hotels) are the real challenge, especially those with mandated isolation,” Watts said.

A second spike in COVID-19 cases is deflating optimism, panelists said.

“Mass tourism will take time. Guests do not want to be stuck in another country,” Rajakarier said. “Take Italy, with a second wave and 20% occupancy, where it had been up to 65%. That’s a 20- or 30-percentage-point occupancy swing, which is huge, so it is hard to manage.

“Ireland has gone into lockdown, closed. Wales, too, and (the rest of) the (United Kingdom) is talking about it. There is a lot of panic. I am more worried that the pandemic crisis is very soon turning into an economic crisis.”

Working together as an industry is even more of a necessity than it was, say, a month ago, panelists agreed.

“From a corporate perspective, there has to be substantial restructure, as the worst thing we can do is to close hotels and attracting single-shot tourists is more technical and costly,” Watts said. “We have been threading the needle and quick to protect the core … after years and years of record-growth numbers (since 2008).”

Cronin said that even in an incredibly competitive city such as Hong Kong, she is seeing for the first time the industry fully coming together as a group. Watts said he hoped to see even more industry collaboration.

The panelists said the global industry could still do a better job, especially as governments, even though they still wish to help, have their funding stretching intolerably across entire economies. The bottom line is that a COVID-19 vaccine is still required.

Travelers are only prepared to leave their homes if a complete set of new prerogatives are in place, such as health, sustainability, heightened experiences and a lack of quarantine protocols as long as those protocols are deemed safe, panelists said.

Despite the current realist attitude, Rajakarier said his company is seeing opportunities.

“Important is the need to move fast and be able to adapt,” he said.

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