The COVID-19 crisis is having a devastating impact on the travel and leisure industry, and threatens economies and communities that rely on it, the CEO of global hospitality giant AccorHotels said.
Speaking during a first-half earnings call, Sébastien Bazin said that the pandemic is "taking the world decades back" in terms of traveler numbers, jobs in the industry, and contribution to global GDP.
"What we're going through [is] global, sudden, violent and unprecedented," said Bazin. "We are one of the worst [affected] industries going through the crisis, with nothing much we can do about it except coping with it, responding to it and adapting to it."
Almost 20% of Accor's hotels remain closed as a result of the pandemic, while occupancy in those that are open is significantly below what is normally expected for this time of the year. Accor is Europe's largest hotel company, operating more than 4,800 hotels across 100 countries.
Occupancy in Accor's hotels was severely hit in the first half of 2020, falling to 14.7% in the second quarter of the year and 31.0% across the first half. Occupancy is improving weekly, said Bazin, with the five-day rolling average as of Aug. 3 for Accor brand hotels in China standing at 60%, while France saw 56%, Germany 39%, the U.K. 35%, and North and Central America 35%.
The drop-off in business in the first half of 2020 caused revenue per average room to fall by 88.2% in the second quarter of 2020, and 59.3% overall in the first half of the year. This contributed to a 48.8% drop in Accor's revenue for the first half of 2020 to €917 million, feeding into a negative EBITDA of €227 million and negative recurring free cash flow of €473 million.
Accor has scrambled to cut costs in response to the crisis, leading to the vast majority of its more than 200,000 staff being placed on government furlough schemes that have paid a percentage of employees' wages. Bazin described the process of furloughing such a large number of staff as "extremely intense."
The company has reduced cash burn from €150 million in March to €80 million per month over the course of the first half of 2020, said CFO Jean-Jacques Morin.
"We took immediate and drastic measures in order to protect earnings, and on the other side, making sure that we've got the proper financial level," Morin said.
The crisis has severely limited Accor's ability to forecast how the business will perform in the months ahead, said Bazin. "It's kind of bizarre that at this stage, half-year, we simply have no idea whether the 1.5 billion numbers of travelers [the global travel industry] enjoyed over the last years and months of 2019, will be dropping to 600 million or dropping by 80% to 320 million."
The company's visibility has been further hampered by a significant reduction in booking notice periods, with 60% of current bookings made with less than five days' notice compared to at least 10 days during 2019, Bazin added.
The lack of visibility means the company is unable to provide guidance for the full year to shareholders, which it traditionally did during its first-half earnings call, said Morin.
Still, Accor is viewing the crisis as an opportunity to strengthen the company moving forward, Bazin said. Accor's move to an "asset-light" business model — selling off its property assets — in recent years is likely to be hastened by the pandemic, said Bazin.
"We need to finish the job, and we need to go to a full asset-light company in terms of organization," he said. "If anything, COVID is an accelerator. It's not an excuse, it's not the cause, but it is certainly helping [our] people to understand the necessity to readjust."
The crisis is also offering opportunities for further growth through partnerships and acquisitions, Bazin added. "For the last four months, I've never ever seen so many inquiries by small and medium-sized groups looking for whether they could partner and basically get help from Accor when it comes to distribution, comes to access to [our] loyalty program."
It was recently announced that Accor is partnering with a Travelodge Hotels Ltd. landlord to launch a new hotel platform offering other owners of Travelodge properties the option to switch to the Accor-owned ibis budget brand on a new lease structure. The platform, AGO Hotels, was created after months of bitter rent disputes with Travelodge, which culminated in the operator entering into a CVA last month and demanding rent cuts of between 25% and 80%.
"There are other stories like this one where people are basically thinking harshly to convert to a different [hotel] operator and basically knocking and having a discussion with us," said Bazin. "It's going to be a group of hotels of 10,000 rooms and above joining the Accor portfolio which, again, would not have [happened] without COVID."