Spain looks to EU for transformation

A raft of hospitality businesses in Spain have come together to seek European Union funds and transform the country’s tourism sector.  

The multi-agency approach may yet become mired in regional political infighting, local market experts warn. But if it succeeds in gaining funding, there is an opportunity to transform the country’s tourism offering across several major metrics.  

More than 70 companies have signed up to the Tourism of the Future initiative, which could potentially drive more than EUR5.8bn of investment, across several key initiatives, drawing from the European Union’s Next Generation funding pot. From the hotel sector, Melia, Iberostar, Riu and Barcelo have put together an action framework to drive improvements. In a statement, Melia noted: “The companies consider that the help of European funds towards the investments of private and public entities in these destinations is absolutely essential to make the transformation that they require viable.” 

The united front from Spain’s famously fragmented hospitality sector has been hailed by one Spanish newspaper as a “historic milestone”. Tour groups, and investor Azora, are among other organisations lined up to support the manifesto, entitled “Towards a Sustainable and Smart Tourism 2021-2026”. 

The project will aim to tackle improvement across four key areas: smart tourism; the circular economy; energy efficiency and reduction of the carbon footprint; sustainable construction and the transformation of destinations. 

Says the manifesto document: “We are committed to the modernization of the sector through the sustainability of hotel assets and the efficient management of the tourism business and the digitization of processes and the customer experience.” 

The proposals set out individual corporate actions, as well as a series of co-operative actions and sector-wide changes such as enhanced digitisation.  

One initiative is to revitalise a dozen key tourism destinations: Magaluf and Playa de Palma on Mallorca, AronaAdeje and Puerto de la Cruz in Tenerife, Benidorm, Lloret de Mar, San Bartolomé de Tirajana, San Antoni de Portmany, Costa Calma, Teguise and Torremolinos.  

Nationally and across all sectors, Spain is already in line for EUR150bn of funding from the EU, according to consultants FI Group, and it will be the first country to benefit from Next Generation funds; the country’s allocation has already been increased by 15%, after a review of the pandemic’s economic effect suggests Spanish GDP will now fall 12.4%, greater than previously estimated.  

Spain’s tourism ministry was already working on a 2030 plan that would transform the sector; but this has been given greater impetus by the pandemic. The ministry noted the importance of the sector to Spain – it delivered 12.4% of GDP in 2019, and 12.9% of the country’s employment.  

For Melia, there will be the opportunity to take its sustainable agenda further. Already recognised as one of the most sustainable businesses globally – it came seventh in a Wall Street Journal ranking in 2020 – the company is keen to convert a hotel in Menorca to a carbon neutral project. “We do not aspire to be among the largest companies in the world, but we do aspire to being a good company for the world,” said Melia CEO Gabriel Escarrer recently. “That means we have to manage the resources within our reach in a sustainable way, guaranteeing a balance between our growth, environmental protection and social welfare”.  

Philip Bacon, senior director at Horwarth HTL in Spain, told Hotel Analyst: “We are involved with this, but it’s early days – there is still a great deal of doubt about how the hospitality sector will be able to gain access to these funds.” He also indicated that the federal nature of the country – with politicians split across 19 regions – could complicate the sharing of resources.  

Ivar Yuste, partner at PHG Hotels & Resorts, said there remain challenges ahead for the sector: “Independent hoteliers are left out of this because, if they are not associated to specific organisations or associations (within these 70 companies and bodies), they have no voice.”  

“The Spanish hotel and tourism sector is in urgent need of consolidation. The top 15 hotel groups are US or Chinese. Meliá, as much as we perceive it as a global hotel company, is just number 19 in the global hotel ranking – the CEO of Melia has no political leverage.” 

“What this illustrates, is the fundamental weakness of Spain as a global tourism destination. Spain is the number two destination in the world after France, and ahead of China and the US, but its tourism and hotel companies are minuscule. The largest contributor of the GDP of the country is in the hands of very small companies that do not have political weight.”  

The Spanish government, which is coordinating bids, expects to make a submission to the European Union for funds in March 2021.  

HA Perspective [by Chris Bown]: A hospitality sector that is massive in scale, with no voice at the political table? We’ve heard that before, said elsewhere – it’s simply crazy that politicians can get all hot under the collar at the loss of a few hundred jobs when a factory closes, but have watched lockdowns across Europe decimate the sector that provides jobs by the bucketload, and creates plenty of inbound business too.  

And so from a common complaint, to Spain in particular. If they can get this bid for EU funding over the line, then some of the tired bucket and spade destinations of the Spanish Med could get a serious makeover. And we could be saying hello to branded resorts, higher prices – and higher returns for hoteliers, too. But that all started with if…. And it’s a big if. 

Additional comment [by Andrew Sangster]: There is a growing split between those operators in southern Europe that believe there will be a strong summer thanks to travel from the rest of Europe and those that believe it is going to be a domestic driven market for most of 2021. 

Spain’s two big players – Melia and NH – fall on either side of this debate, with Melia optimistic about intraregional travel and NH more pessimistic. If Melia proves correct in its outlook, then there will be widespread relief across the existing operators. If NH has guessed right, then it is the vulture funds that will be taking to the wing to swoop unless the huge state intervention discussed in our story above moves forward. 

This week Tui, Europe’s biggest tour operator, said it had 2.8 million customers booked for this summer, about 80% of its capacity. Its revenue for Q1 (October to December) however was down 88% and bookings for the winter season were down 89%. 

Morgan Stanley, in a note to investors in Tui, said the company’s summer capacity plans were “ambitious”. It warned of downside risk. 

If Tui’s optimism proves correct then Melia’s prediction will win the day. Otherwise, Tui’s recent difficult quarters are going to be repeated and NH will be right. 

The mood music about international travel is hardly promising. In the UK, headlines have trumpeted the proposed Government legislation to put quarantine breakers in jail for 10 years. Such horrific curtailments on basic rights have not been opposed by opposition political parties. Rather, the criticism the Government faces is of not moving fast or far enough. 

In addition to the risk of extraordinary punishments, travellers face a bill of GBP1,750 per person for the 10-day quarantine and a tighter testing regime. There will be a limited number of entry ports available to travellers, possibly only Heathrow, Dover and Eurostar. 

At present, 33 countries are on the “red list which requires any traveller who has been in that country in the past 10 days ahead of arrival in the UK to quarantine.  

Portugal is the only European country. But given that Portugal is in the Schengen area of common travel between 26 European countries, it remains problematic for the UK Government to enforce travel restrictions effectively. There has been repeated press speculation in the past few weeks that Spain will be added to the “red list”. 

The level of possible restrictions and sanctions facing overseas travellers from the UK are materially higher than last year. How much of an impact this has on the desire to travel remains to be seen but so far, it looks remarkably resilient. 

If there are “vaccine passports” or similar, and the opportunity to travel this summer, then Britons look set to travel in significant numbers. 

But this is a tortuous guessing game for operators catering to outbound British travellers and the UK domestic industry which stands to benefit if restrictions are tight. 

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