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Will things get better?

 

Unprecedented times

With a month and a half of widespread confinement and the second half of the state of emergency underway, discussions about the gradual return to normalcy have surfaced. We find ourselves in uncharted territory, and the uncertainties ahead are profound. Will we maintain a plateau in a scenario of controlled reopening, or will we retreat to our homes after a mere fifteen days? Will a vaccine arrive in October, January, or April? How will consumers behave in this unprecedented situation, especially tourists and travelers? This is to state the obvious: as a commentator, I find myself short of futurology but well beyond the comfort with which I approach more matured topics.

No New Normal

The notion of a “new normal” or “nothing will be the same again” has become a cliché. In 2001, we believed that the September 11 attacks would radically alter our lives, particularly in the realm of tourism. It did bring about some changes in habits and practices, accompanied by an economic crisis, but in the long run, the trend of increased travel persisted.

To provide a coherent analysis, one must consider three distinct phases. The first, expected to commence in May, entails navigating uncharted territory. It will involve significant operational adjustments in hotels and the broader tourism sector to minimize risks and provide reassurance to clients and guests. This phase is likely to witness a timid recovery, with tourism limited to nearby destinations. Travelers may find themselves torn between the need for escapism and the management of anxiety, while hotels grapple with the desire to resume operations and the fear of inadequate demand.

 

The second phase emerges after the introduction of a vaccine and/or treatment, representing the normalization of consumer habits at all levels. However, the alleviation of health-related restrictions will be counterbalanced by the weight of an inevitable economic crisis, marked by recession and a recovery deemed slow. This economic downturn, possibly exacerbated by a new debt crisis, mirrors the classic economic cycle that we are familiar with, but prefer to forget.

The third phase is that of good news, and its proximity remains uncertain. It signifies the return to economic growth, essentially the next cycle shift.

Tourism in the Storm

The upcoming phases will be arduous for the tourism sector, facing a weak economy, high unemployment, and threatened incomes. Airlines will struggle, with some facing nationalization or permanent closure, and hotels will bear the burden of transitioning directly from the winter of 2019 to the winter of 2020 with over a year of operational deficit. Some may not reopen in May, and others may succumb later. However, with effort and support from banks and other stakeholders, most are likely to gradually recover to normalcy. Those most leveraged and less efficient will be particularly vulnerable. Many will discover that long-term investments must consider the economic cycle.

Not All Is Bad, Much Is Good

The mid-term scenario does not appear vastly different from what was experienced between 2009 and 2012. Yet, two crucial differences exist. Firstly, the demand for Portuguese tourism assets has never been higher. Unrealistic value expectations from sellers have halted numerous transactions in recent years, and the shock of reality may facilitate the transfer of ownership and the prospect of a new life for these units. Secondly, the banking sector has learned valuable lessons from the previous crisis, and is now capable of finding swift and effective solutions for distressed assets, preventing their prolonged existence in a state of minimal support and consequent market contamination.

In conclusion, despite these challenging days and the undeniable human tragedies accompanying any crisis, a stronger hospitality sector is likely to emerge. It will be more consolidated, professional, competitive, and undoubtedly more international. This transformation is inevitable in a country lacking significant capital and a particular reformist drive.

Written by Filipe Santiago

May, 202o

This article was published in Ambitur. You can access the online version here.

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