Hotel Industry Experiencing Headwinds, but Fundamentals Support Stakeholders

Hotels

Márton Takács, Global Leader: Hotel and Leisure, Moore Global, Head of Hotel & Tourism Advisory, Moore Hungary (left) and dr. Márton Kovács, Managing Partner, Moore Legal Hungary

The travel industry faces an uncertain summer season for the third year in a row as the economic ripples of the war in Ukraine are amplified by cumbersome international air travel, canceled flights, and lost baggage experiences, putting both travelers and service providers to the test.

Surprisingly, the level of travel demand in some places is at or exceeding 2019 (pre-pandemic) figures. European hotel performance indicators show that, whilst the world-average hotel room occupancy was 54.2% in the first five months of this year, European hotels still averaged slightly below that (53.8%). However, the recent abolition of European covid-related travel restrictions has started a full-throttle release of pent-up demand, quickly moving the continent up the chart. It became the best-performing region in the world in May, with a realized total hotel occupancy average of 70%. It is anticipated that this European rebound will last through this year.

Hungarian hotels seem likely to follow suit; besides unprecedented seasonal occupancy in top summer destinations, hotels also seem to be capitalizing on the inflationary environment. Compared to May 2019, average hotel room rates were 22% higher nationally, 13% higher in Budapest, and, significantly, 28% higher in the Balaton region in May. That growth is anticipated to soar further in the summer months.

“Top Hungarian leisure destinations enjoy the strong realized demand, and price levels seem to keep up with inflation, largely balancing rising cost levels,” says Marton Takacs, hotel and leisure sector leader for Moore Global and head of hotel and tourism advisory at Moore Hungary.

“There is no definite answer as to how far along Hungarian domestic travelers will be able to keep up with the price increases, but we do see a very strong desire to go on vacation after the pandemic, and people seem to be willing to allocate more of their discretionary income to cover the rising costs,” he notes.

“Despite the turbulence and potential short-term strained financial performance, we believe that the fundamentals continue to support the market stakeholders’ optimistic longer-term outlook. This goes for operators and hotel real estate developers,” Takacs adds.   

Despite the challenges, two years of COVID improvisation, innovation, and reinvention mean many businesses can better survive the continuing turmoil. Measures introduced in haste when the pandemic struck are now proving to be beneficial to operational efficiency and financial sustainability and are already becoming the “new normal.”

Russia’s actions in Ukraine have created new risks, not least an oil price spike which has pushed up fuel costs. Still, the United Nations World Travel Organization is sticking to its prediction that international tourist arrivals globally in 2022 will be 30-78% higher than in 2021.

Many measures which would once have been considered inappropriate by most hoteliers became necessities during the pandemic to help hotels stay afloat. Rooms were not cleaned every day and check-in went online. Restaurant menu options were accessed via a QR code on a smartphone and reduced to compensate for the fact that most properties were running on skeleton staffing to preserve cash.

Individually, they may seem inconsequential, but as a package, they significantly impact business sustainability. What is more, customers did not seem to mind, encouraging hoteliers to go further. Moore Hungary’s hotel and leisure experts predict several emerging trends will gain real momentum and soon become standard operating procedures for hotel groups in Hungary as well.

For many businesses, one of the biggest obstacles to a return to normal is the lack of staff. There are expected to be around 60 million job vacancies globally in the hotel industry this year, and the majority of those hourly-paid jobs will probably remain unfilled as millions of low-paid staff have moved on to other sectors, retrained, or left the employment market entirely.

Moore Global Network member firms have established track records of providing business advice to hotel, leisure and tourism owners and operators. No matter what area of the hotel and leisure industry you operate in, our understanding of the key market drivers provides clients with the necessary advice to add value and gain a competitive edge.

This article was first published in the Budapest Business Journal print issue of July 29, 2022.

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