Curmi & Partners

Tourism – Covid-19’s greatest patient

By Noelle Micallef

Tourism has been a strong and resilient economic sector over the past decade. International tourist arrivals were recorded at 1.5 billion in 2019 globally, a 4% increase over the previous year, representing the tenth consecutive year of growth according to the UNWTO World Tourism Barometer. Unfortunately, the COVID-19 pandemic interrupted this growth. The sharp decline in mobility and an increase in social restrictions have caused a slump in travel. The World Tourism Barometer reported that international tourist arrivals dropped by 65% during the first half of 2020. This translates into a loss of 440million international travels and about $460billion in export revenues from international tourism. More than 121 million jobs in the travel and tourism sector have been impacted globally, as of September 2020.

Countries which are net exporters of travel services, such as Spain, Greece, Portugal and Malta are experiencing major, unprecedent shocks, the impact of which is still being determined. Locally, the travel and tourism sector contributed to €2.03billion to GDP in 2019, according to the World Travel and Tourism Council (WTTC), accounting for approximately 17% of GDP. The National Statistics Office reports have shown that in Malta there was a 77% drop in number of tourists in the peak summer months (July to September) over the previous year. Even more worrying is that total expenditure by tourists decreased by 81%. Between 2016 and 2019, tourists spent approximately €119 per guest night in Malta, whereas in 2020, tourists only spent around €79 per night. It has been estimated that €251million in tourism revenue were lost in July alone.

Back in March, the President and CEO of Marriott International stated that Covid-19 was “having a more severe and sudden financial impact on business than 9/11 and the 2009 financial crisis combined”. Locally, the projections for FY2020 of corporate groups operating in the hotel and tourism related sectors which issued securities on the Malta Stock Exchange, show that revenues and profitability are expected to be greatly impacted by the pandemic. In the analysis below, the following companies were considered: International Hotel Investments p.l.c., AX Holdings Limited, Spinola Development Company Limited, Stivala Group Finance p.l.c, Eden Leisure Group Limited, Phoenicia Group, Von Der Heyden Group and Sea Pebbles Limited. It is pertinent to note that group projections included in the respective companies’ financial analysis summaries could include other operations in addition to those specifically related to hotels and tourism.

Figure 1: EBITDA in €millions

Source: Financial analysis summaries 2020 updates of: International Hotel Investments p.l.c., AX Holdings Limited, Spinola Development Company Limited, Stivala Group Finance p.l.c, Eden Leisure Group Limited, Phoenicia Group, Von Der Heyden Group and Sea Pebbles Limited; Curmi & Partners Limited

Whilst revenues are on average expected to decrease by circa 51% over the previous year, results from operating activities are expected to decrease by around 124% and EBITDA by 72%, on average. One of the largest hits is expected by International Hotel Investments p.l.c., which owns, develops and operates hotels, residential and commercial real estate worldwide. Management expects EBITDA to decrease by 107% to a loss of €5.2million on account of the complete shutdown of most the group’s operations in Q2 2020 and the slowdown in operations during the remainder of the financial year. Phoenicia Group is also expecting a reduction of 208% in operating profit in 2020, as occupancy levels and revenue per available room have declined considerably.

A study by Škare, Soriano and Porada-Rochon examines the historical effects of past pandemic outbreaks, correcting the real-time parameters of Covid-19. The study shows that pandemic crises have long-lasting negative effects on tourism industry and economy. In the optimistic and unlikely scenario wherein all lockdowns end immediately, the world economy takes around one quarter period to achieve a new balance. If partial lockdowns persist, recovery time will likely be considerably longer.

Several government initiatives have been introduced to reduce the hit on the tourism industry, however, it is essential that business players focus on their strategies and develop strong contingency plans to recover from this crisis and return to “business as usual” as soon as possible.

The information presented in this commentary is solely provided for informational purposes and is not to be interpreted as investment advice, or to be used or considered as an offer or a solicitation to sell/buy or subscribe for any financial instruments, nor to constitute any advice or recommendation with respect to such financial instruments. Curmi and Partners Ltd. is a member of the Malta Stock Exchange, and is licensed by the MFSA to conduct investment services business.