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Central America and Caribbean Hotels to Withstand Crisis

6 MIN READApril 17, 2020
Central America and the Caribbean hospitality sector has seen a great impact on their luxury and upper class occupancy rates in the last weeks. COVID-19 has caused almost every destination in the region to go down to below double digit occupancies. Yet, there is optimism among members that this will pass and that the industry and the region’s economy will recover. GRI Club members from the Central America and the Caribbean region gathered to discuss how this crisis will change the development of future destinations and how COVID-19 has impacted the region’s hospitality industry. 

Key Takeaways

  • Development banks are working closely with Latin American governments to bridge the financial gap generated by COVID-19 and stimulate local economies. 
  • Central American and the Caribbean hotels have diversified their operations to support local communities during this crisis through creative solutions. 
  • Predominant sense of optimism among members that this will be only temporary and that the industry will recover.
  • Social and environmental sustainability will play a major role in future hospitality development. 
  • There will be a greater need in public and private sector alignment to develop future destinations and ensure a positive response during a future crisis. 
  • Domestic travel to be the first segment to pick up after the crisis, followed by corporate travel. 

The Role of a Development Bank in the Hospitality Sector

The role of development banks is to attend the markets and sectors that may not whet the appetite of commercial banks, or may have more risks than they are able to take. Rogerio Basso, Head of Tourism at IDB Invest explained that development banks are anti-cyclical and aim to support countries and sectors to execute their plans and boost their growth. In times of adversity, these institutions seek to generate win-win situations for all parties involved. For 2020, IDB Invest established a goal to provide US$5 billion in loans in the Latin American and Caribbean region. So far 1Q20, the bank has already closed US$500 million in loans, proving that there is high interest to keep pushing development.  

COVID-19 has had a great impact on the world, its economies and its citizens. The impact it has had on the health sector has weakened each country’s ability to fight the virus. Apart from that, there is a lack of liquidity in the market that is accompanied by a worry that the cost of financing will also increase due to changes in country risks. Growth and productivity of the region have also been impacted. Firstly companies do not have to produce much because there is currently little or no demand, while there is a lack of personnel. 

IDB Invest has created a special COVID-19 fund to help the region overcome this crisis. This fund will help public health systems by providing the supplies hospitals need. IDB Invest is working with the government to help the informal sector to help the vulnerable population that has no income as well as provide aid to SMEs by injecting liquidity. The bank is working closely with local governments to create fiscal policies that will help economies recover, as the private sector cannot overcome this by itself. Various countries have already started to do this such as Brazil, Chile and Colombia. 

There has been a good interaction between the public and private sector. Members have seen that there are many hotels that have been adapted to provide service to the public health system. There are hotels that are being used for first response teams that need a place to sleep or rest. Other hotels have adapted a quarantine role for those who cannot go back to their home country. The industry is doing an amazing job in supporting the community during these difficult times, creating soup kitchens and even sharing cleaning materials. There is a kick in creativity and the industry is moving rapidly. The worst in times, brings the best in people. 

COVID-19 Long-Term Impact on Central America and the Caribbean Hospitality

Members’ main sentiments are optimistic and that this will be something temporary. China is starting to recover from this crisis. The objective data tell us that there is a recuperation process and it is temporal. The fact that COVID-19 struct regions in different times gave latin America a chance to prepare for what was coming. The preventive measures countries have been taking are going to help flatten the curve. In the medium-long-term, there are various factors that should not change when it comes to generating new destinations. 

Sustainability, social and environmental, needs to be secured. This makes it so that the community and the people have a commitment to the project and that when there is adversity, there is a stronger participation from the entire supply chain.

 There needs to be a strong presence from the sponsor, especially in times of crisis. The sponsors need to demonstrate that they are there and that they are willing to face the crisis head first and do all that is necessary to overcome it. For future destinations, we also see that there will be a higher need for alignment between government entities and the private sector. Especially since there is a direct impact on the surrounding communities and environment. 

This is a trust crisis, and not a financial crisis. There is a desperate feeling to leave the house and to go back to the life we had before. The trust that we individually have on leaving the house again. A vaccine will help bring this trust back to the market. All local demand could recover faster, as people may still be worried about taking a plane to a destination, rather than just hopping into their car with their families and taking a drive. Domestic leisure travel will be one of the first sectors to recover. The corporate sector will start traveling again when companies lift their travel bans, recovering slowly. The last one will be corporate and group travel as many events have been cancelled.

 Looking ahead, there are various forecasts for how the US market will recover. At the moment, experts are saying that the market starts recovering in 2021, but will not reach the levels that we had in 2019 until after 2022, and as late as 2024.  

Perspectives from International Players in the Region

International members agree that this is something without precedent. The impact to the hospitality industry has been worse than what happened in September 11 and the 2008 financial crisis. The most impressive thing about this is that it was felt globally from one day to another. Hotel occupancy dropped, starting in Asia and making its way to Latin America. 

Some members discussed that chains are having to shut down some of their hotels. As a chain, they have extended many offerings to hotel owners to ensure that the standard of the brand is kept and to support them to carry on with their operations. Hotel chains are tackling the crisis by cutting the paychecks of high executives and in some countries will suspend all activities for the next 60-90 days to ensure liquidity. Although there is worry on when this will end, members are optimistic and hopeful that it will recover. Especially looking at how China is responding and is now at a 30 percent occupancy rate. 

Local Players Search Flexibility

Members agree that the local government’s response to the crisis has had a direct impact on how that hospitality sector has been affected. Local members agree that this isa health and trust crisis that is having a deep impact on the industry’s finances. Local hotels with international brands have received ample support from the brands and have helped relieve some of their pain throughout the region. 

Nevertheless, some hotels in the region are seen as having to let people go as they have no other way to reduce costs. Members are fighting to keep as many jobs and ensure their safety. Most governments are attending the health crisis, leaving the companies to fend for themselves financially. In Costa Rica, as 99 percent of the are closed, there are talks about subsidies for the private sector that are being impacted by the crisis. Members have seen flexibility in reducing labor hours from the government which allows them to not have to let any more employees go.  

As for projects that were in design or financing stages, members believe that underwriting for the construction of these projects in the long term will be affected. The banks cannot forecast occupancy rates or the future performance to make a decision on a loan to develop the hotels. There is uncertainty as to what the new parameters will be for financing.

Key Factors to be Considered for future Hospitality Development

  • Hotels as an investment class: Will it be permanently damaged and will the economy change drastically? 
  • Travel patterns: How will they change and what will domestic versus international look like? 
  • Supply chain effects: How will it be altered after its vulnerability on globalization has been exposed? 
  • Labor laws: Will the governments learn from this experience and increase the flexibility of labor laws?
  • Long term impact on corporate travel: Will there be less travel as companies experience remote working and improve its efficiency? 
  • Effect on supply growth: Will hotels reopen and those that were in construction actually be inaugurated?  
  • How will players change and adapt their future business plans to face another crisis in the future?
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