Has Thomas Overcooked The Hotel Sales Marketplace?
Current thoughts on the large hotel marketplace.
The falling of the legendary travel company Thomas Cook has got many people talking and with very good reason. I feel very sorry for all those people who have lost money, had their holidays disrupted and had major issues returning home after a disrupted holiday. I really do However as a business publisher, commentator and broker I have other things to discuss on this one.
I have owned four travel businesses so I know a thing or two about the travel industry and I have brokered the sales of one or two of these large hotels.
You see, Thomas Cook had so many hotels in most of the world’s family holiday hot spots under contract that things have reached a head. We have all heard the stories about hotels demanding up to an extra £2,500 from holiday makers because they cannot get any more money from Thomas Cook and will not have been paid for the summer high season until October 2019 anyway. So now zero chance of getting paid.
I have heard of one or two stories of smaller foreign hotel operators considering their options. These are typically a couple or a family who one maybe two hotels in a small tight geographical area. These hotels will have been almost dependent on huge season long bookings from Thomas Cook and maybe another smaller operator or two. Sure another major tour operator such as TUI might take them on a contract for next season or over the winter if they are lucky enough to have a winter season. You can bet though that the likes of TUI will tighten the terms and may not offer as good a rate as Thomas Cook. These other operators also have to consider their existing cover in the local area especially in the busier resorts such as the Costa Del Dol.
This then leaves hotel owners facing some tough decisions about what to do next. They could for example change their offer and appeal to a different set of customers and travel companies for next season. It could be a costly one this with the investment required for such a strategy taking some years to recoup. They might not be able to complete a hotel transformation in time for the start of the next high season especially if extensive building work is required.
The next most obvious thought is to sell up. I think that this one is on the minds of many of the smaller operators involved. Thing is these hotels take time to sell. You can’t just nip down to Jovial & Co estate agents and get them to sell a hotel for you. It is a specialist market unlike selling a house or a car and no, you cannot put one of these on eBay either! The selling of any hotel is a time consuming, difficult and delicate affair.
This is where it gets even more difficult. How does this affect market prices, say for a 100 room hotel on the Mediterranean coast? If it was only one hotel probably not a lot, the list price of 2 or 3 BMW 3 series would probably cover it. But now imagine 50 or 60 hotels on the Mediterranean coast coming on the to the marketplace almost all at once with owners keen to get their money out.
You see, the worst case scenario is that we have a large number of hotels with no certainty over the winter season or next summer season and almost all of these will need some close season maintenance, refurbishment or heavy investment. These hotels will have been relying on the October cash receivables for this.
Dial in Brexit concerns with the UK market as well and the picture does not look at all good. The UK is a major market for these hotels especially the Spanish, Portuguese and Greek ones. These are delicate and price sensitive economies too.
I don’t think the sale marketplace for these types of hotels will breach three figures and if it did I would say that the price/value contraction could be as high as 40%. In general terms i think that the price/value contraction will be in the range of 15% -30% depending on condition, turnover and stability of forward contracts. I am sticking my neck out a little here but I do believe these numbers are reasonable.
So yes, while I sympathise with the demise of Thomas Cook. I do think they have overcooked the hotel sales marketplace. To be fair based on some of the things I have read in the popular and specialist press about the management at Thomas Cook I do not believe that they thought or realise that they could overcook the values of these hotels into a contraction or depression. I sympathise with the smaller family hotel operators caught up in this too.