Key people and analytical indicators predict a very positive Europe Hotel market going forward. With the European bond market ramping upward, and big hotel players making huge investments, most analysts agree Europe travel may be coming out of the recessive woods. Despite the positive signals though, price cramping and other considerations will continue to prove problematic for some hoteliers.
“I’ve been watching the 10 year in Spain and Italy all year. As soon as [the yields] broke 4 [percent], it’s kind of like a referendum that Europe is going to at least get through. At least the Euro risk is done,” said Sternlicht, whose private equity group has $33 billion in assets under management and focuses heavily on real estate.
The bond yields are converging, he said in a “Squawk Box” interview. “So now you have the Spanish and Italian 10 years trading around where the U.S. 10 year [Treasury] is or getting close.”
Starwood Hotels, for those who have not heard, intends on buying more than 50 hotels in the UK alone in the coming months. On the digital end of things Pam Whitby, Editor at Eye for Travel, recently pointed to online travel business taking an upward trend of late. This Hospitality.net report tells of OTAs and other digitally depended revenue seekers finally seeing growth again. Whitby says brands may have the edge in the coming uptrend, but independents stand to win as much if the upswing is more permanent.
Sure enough, even ITB projects (PDF) growth for Europe in the neighborhood of 4% as compared to 2.5% last year, and the International Monetary Fund (IMF) concurs. From our own experience, some places like Greece are actually overbooked by as much as 50%. The problem for some markets will not be filling rooms, but creating rooms to fill the need. Crete, where we were just on working vacation for three weeks, is already experiencing some pain in accommodating all the travelers. Another problem in Crete and elsewhere, the negatives of tour and package travel affect profitability etc. This ABTA report (PDF) addresses the desirability of package travel.
Price and revenue being a determining factors, hoteliers across Europe need more than growth. a break than raw growth. Taking Crete as an example, being low-balled into tour bookings has a dual effect. Filling rooms at the bare minimum price ensures a revenue stream. However, lost opportunity costs over premium sales cause dire suffering on the part of owners. Alternatives to hotel stays being the current fix for overflows, villas and high end accommodations will see ever increasing growth at the expense of marque hotels. The Crete situation is a prevalent one for all such popular regional destinations. Ryanair and other low cost air-carriers adding flights remedies transportation costs, but increased touristic flows exacerbate the loss of revenue.
It remains to be seen if investment like that Starwood projects will both take advantage or, and alleviate the pain of disparate pricing and tourism numbers with regard to Europe. With so many underserved markets room wise, and considering very low marketing budgets too, it would seem the big players might be more focused on potential, than on the status quo. We’ll be watching these trends closely.