Hotelier India reports what government across the world are doing to kickstart their COVID-19 ravaged economies
Facing an economic whirlpool, countries across the world have begun to deliver a fiscal response to tackle the coronavirus outbreak. Hotels are also doing their bit
COVID-19 has brutally impacted over 160 countries, claiming 55,781 lives as on April 3, forcing people into extended lockdowns and putting a halt to the world economy. Among the industry’s worst hit are travel, hospitality and airlines. Uncertainty about the speed of the spread has sent financial markets into a tailspin, weighed on business across industries and sectors, and has likely plunged the global economy into recession.
Many countries have begun offering economic stimulus packages to shore up their failing economies and help businesses survive. Individually, several hotels and travel companies have also begun to draw up plans to deal with the crisis or simply work with the community until things get better.
The economic stimulus packages
Every industry is dependent on how a country’s economy, in particular, and the world economy in general, perform. This is particularly true for hotels and the hospitality industry. So, for the hospitality and travel industry to revive, the economy needs to revive. For which, countries need to offer economic stimulus as soon as things get normal.
China: The country, which was the epicentre of the coronavirus breakout, is looking to strengthened its engagement with European nations hit by COVID-19. It has thrown open its cities to business. Bloomberg reported that China will increase its fiscal deficit as a share of gross domestic product, issue special sovereign debt and allow local governments to sell more infrastructure bonds as part of a package to stabilise the economy. The stimulus package is centred on a deficit of 3.5% of GDP and tax reductions of 2.5 trillion yuan ($352 billion), as well as special local debt boosted to 3.5 trillion yuan from 2.15 trillion yuan in 2019
China often falls back on “special” debt during a crisis; these financial bonds are accounted for outside the regular budgets and are a way to target the proceeds at specific sector stimulus, like infrastructure investment. According to Bloomberg, “By selling special sovereign bonds top policymakers are opting to expand the balance sheet of the central government since it is in a relatively better fiscal situation than local authorities.”
Unites States: The hotel industry is projected to report a 50.6% decline in RevPAR in 2020 due to COVID-19 crisis, states a special forecast by Tourism Economics. The U.S. travel and tourism industry could lose at least $24 billion in foreign spending this year. That would be equivalent to about seven times more than the industry lost during the SARS outbreak in 2003, according to the data. The figures also imply 8.2 million lost visitors in one year, which would be even more than the 7.7 million international travellers lost in 2001 and 2002, after the 9/11 terrorist attacks, according to CNBC.
President Donald Trump has already signed an $8.3 billion aid package aimed at helping states pay for the cost of fighting the outbreak and vaccine development. Lawmakers are also discussing putting together at least one more package aimed at stemming the financial loss, as well as the human toll. The White House has floated ideas such as possible payroll tax cut and small business loans. President Trump is looking at offering airline and cruise ship industries a big relief.
Many have asked the government to offer stronger packages for the travel and hospitality industries, which have a large base in the US. Former Nasdaq CEO Bob Greifeld has warned that a significant blow to the tourism industry could launch a recession. “We never had this situation where you had tourism being such a large part of the global economy. Tourism has increased greater than GDP growth for the past 10 years,” Greifeld told CNBC. In response, the US announced a Covid-19 Relief Package known as the CARES for the travel industry, which would protect livelihoods and offer travel incentives once the crisis settles down.
UK: Britain's Chancellor of Exchequer Rishi Sunak has said he’d do “whatever it takes” to prop up businesses and jobs as the country grapples with the coronavirus pandemic. His emergency package includes £9 billion ($11 billion) of support for the self-employed, bringing the total aid he’s announced since March 11 to £330 billion, including easier access loan facilities, liquidity assistance for businesses through the ongoing crisis period and a 12-month business rates holiday for the retail and hospitality sector. The stimulus stands at about 3% of GDP and he has promised that if the pandemic drags out, there’s the prospect of more to come. The UK is facing a fiscal crisis and will now have to deal with an economy that is expected to shrink at least 5% this year.
Meanwhile, the UK travel sector is calling on the government to make immediate changes to package travel regulations to prevent innumerable company collapses and the loss of thousands of jobs. Association of British Travel Agents (Abta) is asking for an Emergency Government Consumer Hardship Fund to fulfil refund payments and is also requesting that credits should be allowed as an alternative to cash refunds.
Germany: The German government has signed a €770 billion economic stimulus package, which includes loans, guarantees and government stakes in companies, as well as credit to keep businesses afloat. The government is intending to take on new debt to fund these emergency measures. Finance Minister Olaf Scholz needs the extra money to finance additional spending of 122.5 billion euros and close an expected gap in tax revenues of 33.5 billion euros. The extra budget includes a 50 billion euro programme to help small businesses and the self-employed threatened with bankruptcy, with direct payments of up to 15,000 euros ($16,225).
According to a survey conducted in Germany in March 2020, 45 per cent of hotel and hospitality businesses have declared revenue losses between 10,000 to 50,000 euros. The German government said that it is planning to shield companies, including hospitality and travel companies, from going under because of the coronavirus pandemic, by suspending legal obligations for firms facing acute liquidity problems to file for bankruptcy. The suspension until the end of September is aimed at giving companies breathing space to obtain credit already promised by the government. Tourism and hotel group TUI has already stated that they will be applying for state aid to keep it afloat, as it suspended the "majority" of its operations.
France: The country has offered €45 billion as a stimulus package for small businesses and other hard-hit sectors of the economy. France expects over 4 million businesses could be impacted by confinement measures. The country has decided on one trillion in guarantees from member states for bank loans to ensure that there is liquidity and cash flow. The stimulus project will take the form of reduced social security contributions and unemployed benefits linked to forced part-time employment. The government is expecting a 1 per cent drop in GDP.
Italy: Italy, which is among the worst affected countries, has announced a €28 billion plan to cushion the devastated economy, which is centred on travel, hospitality and fashion. Among the measures announced is help for workers facing temporary layoffs, a guarantee fund for loans to small-and-medium-sized companies, compensation for firms whose turnover has plunged more than 25%, and some form of the moratorium for business and personal mortgage repayments. The good news is JPMorgan analysts see a modest pickup in the second quarter and a full rebound in the third.
Singapore: Singapore is one of the few countries to have allocated a big sum of SGD440 Million under Resilience Budget to lift its crisis-ridden tourism sector as part of a larger SGD48 billion resilience budget to help mitigate the coronavirus pandemic’s impact on businesses and individuals.
SGD350 million will be allocated under the Enhanced Aviation Support Package, which will provide rebates for airline parking and landing charges, as well as rental relief for cargo agents, ground handlers and airlines. The remaining SGD90 million will help the tourism sector to rebound. Hotels, serviced residences, restaurants, shops and attractions will receive full property tax waiver for the rest of 2020. Besides, the government will co-fund 75% of wages for firms in the aviation and tourism sector, 50% of wages for firms in the F&B sector, and other industries will receive 25% co-funding.
Hong Kong: Meanwhile, the Hong Kong Tourism Board has pledged HKD400 Million to support tourism and MICE. The fund is expected to aid a wide range of players in the industry with a plan to focus on three major areas—boosting domestic consumer confidence, collaborating with trade partners to increase promotions in source markets, and attracting MICE businesses.
HKTB will offer subsidies to the retail and catering sectors for joint consumer promotion, waive the renewal fee for Quality Tourism Services (QTS) Scheme accredited merchants, and offer a 50% reduction in the application fee for new joiners. The participation fee of over 40 trade activities organised by HKTB will be waived, and travel-related activities will also be subsidised. Event organisers will be subsidised to bid for large-scale conventions and exhibitions, the threshold for applying to finance will be lowered to help small and medium-sized meetings and incentives, and the tourism board will team up with the hotel sector on a new initiative, MeetON@HongKong, to provide groups with free meeting or dining packages. The proposed marketing budget in the 2020/2021 financial year, along with the additional funding, is worth about HKD1, 120 million (USD144 million).
Backing these efforts by various countries are the ones made by the World Bank, which is moving quickly to provide fast, flexible responses to lessen the tragic impact on developing countries. The World Bank Group’s package of immediate support will fast track US$14 billion to help developing countries to strengthen health systems, disease surveillance and public health interventions, and work with the private sector to reduce the impact on economies.
The travel and hospitality industry’s response
So drastic has been the effect of COVID-19 on the hospitality and travel industry that Marriott International Inc, one of the world’s biggest hotel operators, has started to furlough what it expects will be tens of thousands of employees, amid hotel closings globally due to the virus outbreak, the Wall Street Journal reported.
The staff reductions will include everyone from general managers to housekeepers, as layoffs or furloughs at the corporate level are still under discussion, according to the report. While on furlough, Marriott will not pay salaries to its employees at some of its managed properties, which it has started shutting down.
Hilton Worldwide Holdings Inc has been forced to abandon their full-year financial outlooks due to a rise in cancellations of room bookings. AccorHotels expects the coronavirus outbreak to hit revenues by €5 million.
Many independent and small-to-mid-sized chains and resorts in remote or seasonal destinations rely on online travel agents (OTAs) such as Booking.com and Expedia, which control 70% of reservations in many markets. At the best of times, a challenge for small hotels, which fork out anything between 15 and 25% in commission to intermediaries, is cash flow. So, as the Coronavirus crisis has intensified and the OTAs have changed their terms of the agreement in response, it has become increasingly tough.
Booking.com, for example, has issued this guidance: We expect you [the hotel] to refund any prepayment and waive any cancellation costs (fees, expenses and/or other amounts) in situations where the guests/travellers requested cancellations as a result of the Forced Circumstances (FC).
World Travel & Tourism Council is now calling for a series of measures to enable the swift recovery of the sector once COVID-19 is under control. They have offered support to all governments implementing strong policies for a prompt recovery and reinforce the importance of strong public-private partnerships and greater international co-operation to respond and overcome the challenges faced.
The global travel and tourism industry is asking for relief packages, which encompass tax credits for employee retention, which would give employers an income tax credit for paying workers even while their business is inoperable. Besides, they are pushing for deferment of quarterly tax payments and the ability to carry back net-operating-losses.
Across the world, big hospitality groups such as Hilton, Four Seasons, Hyatt, InterContinental Hotels, Marriott International and Radisson Hotels have also begun waiving off cancellation fees hotels.