By Kerr Young

THE economic fallout from Covid-19 will be an important test for the hospitality sector as hotels, pubs, restaurants, travel and leisure businesses alike will be disproportionately impacted. Travel restrictions, event cancellations and individuals’ reticence to travel have been immediately felt in the sector.

Cashflow will be the greatest test for these businesses as occupancy levels have shown a sharp decline during March with most hotels closed or in the process of closing. This revenue decline has been from the centres out, with large cities with a traditionally strong mix of corporate and leisure demand impacted first.

The magnitude of the impact will depend on the duration of the outbreak and counteracting measures, though there are compensating factors which could provide some cushioning during the recovery as and when it commences.

Domestic travel markets will see some downward pressure from within-country restrictions and people’s hesitation to travel. However they will benefit from people substituting international vacationing in favour of domestic ‘staycation-ing’ as restrictions loosen in the months ahead.

Governments and central banks are helping support businesses who have cash flow difficulties. In the UK there is a business rates holiday of 12 months introduced for properties with a rateable value below £51,000, which is primarily to assist the small businesses

Some owners will cancel investment plans in the short term and redeploy cash into shoring up medium term cash flow. Others may take advantage of the demand shock and delay re-opening some or all of their buildings to facilitate refurbishments while demand levels are low.

Longer terms implications will depend on whether we see a “V-curve” a “U-curve” or even a “W-curve” and with cashflows in decline it is possible that some companies could see a fall in the value of their business as investors consider the short-term impact this could have on the hospitality sector.

There have also been a significant number of corporate, cultural and sporting events postponed. When normal life resumes these could be quick wins to fill the calendar and stimulate the recovery although with a vaccination estimated to be 18 months away, this could be protracted.

The timing of a recovery will be critical for many markets. For example Glasgow is still hoping to host the 2020 United Nations Climate Change Conference in November.

Likewise, if bans on mass gatherings were to be implemented for a prolonged period of time this would have a severe impact on the larger conferences and other major events taking place across the UK. During the Edinburgh Festival in August many hotel owners can expect to realise in excess of 25% of their annual profits, which is now potentially at risk.

There is no doubt that this is a challenging time for the global hospitality sector which has been through difficult times before with the SARS outbreak, financial crisis and terror attacks, but still managed to bounce back strong.

We can of course draw parallels from these previous difficulties to help understand its impact and prepare ourselves for the times ahead. But the hope is that as fast as this virus arrived, the hospitality sector will bounce back just as quickly.

Kerr Young, UK hotels & hospitality director at JLL, is based in Edinburgh