In Extenso publishes the results of its study on the French hotel industry and the financial challenges ahead

In Extenso Tourisme, Culture et Hôtellerie has published the results of innovative analysis on the economic situation of the French hotel industry in advance of the long-awaited recovery.

The study, which was carried out in conjunction with Extendam and Bpifrance, is a detailed analysis of nine hotels of various sizes and categories and in various locations, which have been monitored for their operating performance and financial position since March 2020. A forward-looking analysis was also carried out with a view to highlighting the short- and medium-term challenges facing the sector.

Short-term disaster avoided

Since the study was launched in spring 2020, the effect of government efforts to cushion the blow of the crisis have been closely monitored (partial activity indemnity, solidarity fund, state-guaranteed loan, etc.). In most cases, operating losses were limited, and net cash levels were maintained. Many banks also allowed hotels to defer their loan repayments, giving them some breathing space in terms of cash flow.

Among the establishments monitored, the two Parisian hotels were worst hit in 2020, chiefly due to the record slump in revenues in the French capital. The case of the boutique hotel demonstrated the difficulties encountered by hoteliers that had to keep paying rent. The luxury Paris hotel is an example of how hard it is to keep expenses down when significant resources are required to main standards of excellence.

“State intervention was key to the survival of many hotels during the crisis. Despite the hoped-for improvements in business indicators over the next few months, it is vital that the risk of short-term default be kept in mind.” Oliver Petit, Partner, In Extenso Tourisme, Culture et Hôtellerie

Not all hotels will recover at the same pace

The reopening of public spaces, lifting of travel restrictions and acceleration of vaccine campaigns bode well for 2022, but the recovery time needed will differ depending on the type of hotel and market.

Leisure hotels with a mainly French or European clientele remained resilient in 2020 and 2021 and should see their businesses return to normal within one or two years. The upturn should also be relatively quick for economy business hotels.

In contrast, high-end luxury hotels, especially in Paris and on the Côte d’Azur, will take longer to bounce back due to their dependence on international markets. Indeed, they may not get back on track before late 2023 or even 2024.

“The recovery in the hotel sector will be uneven. If hotels are to see a return to pre-crisis business levels, they need to preserve their cash flow and mobilise all of their resources to get their business going again.” Bertrand Pullès, Deputy Managing Director, Extendam.

Cash flow – the crux of the matter

Cash flow will need to be constantly monitored over the next few months if certain hotels are to avoid being compromised by insufficient revenues. State subsidies will have disappeared and historical and state-guaranteed loans may have to be repaid before cash flows can turn positive.

The financial pressure will be even more pronounced for hotels under lease, which have had to sacrifice part of their cash flow or state-guaranteed loan to pay their rent. In this regard the crisis will have highlighted the burden caused by sky-high rents, particularly in Paris and other major French cities, and the need for a fairer approach, such as variable-rent leases.

“Banks will continue to support hoteliers, as they did during the crisis, but potential problems need to be anticipated if the right solutions are to be found.” Pedro Novo, Executive Export Director – Tourism Coordinator, Bpifrance.