The Hotel Companies With the Most Exposure to Ukraine and Eastern Europe
The hotel industry is grappling with the crisis in Eastern Europe, but there is still good news: The situation in the country has not yet affected major hotel brands. Hilton, IHG, Marriott, and Accor all operate hotels in the country. While the situation is difficult, luxury hotels are performing well. In addition, these companies are partnering with the United Nations High Commissioner for Refugees to help provide shelter to refugees in Russia and neighboring countries.
Luxury hotels perform well during the pandemic
Despite the recent outbreak of a major influenza pandemic in Eastern Europe and Ukraine, the global hotel industry has performed well, with China leading the way in recovery. Rising gas prices and increased government spending are factors in this trend, and China’s leaders have taken zero-tolerance approaches to new outbreaks of the disease. Nevertheless, the latest figures for European hotels show a tepid response to the pandemic.
The Russian invasion of eastern Ukraine has impacted international travel numbers across Eastern Europe. Hotels in Poland, for example, saw occupancy climb by 30% in the midst of the war, with most international bookings being cancelled. The United States, however, has seen the most cancellations. Despite the recent pandemic, however, some hoteliers in Ukraine, Russia and Eastern Europe are doing well.
In the Middle East, the crisis has put the region’s economy and tourism sectors at risk. The invasion of Ukraine by Russia could trigger the largest war in Europe since 1945. The economic crisis has also hurt several tourism sectors, with many wealthy Russians pouring their money into property in Turkey and the United Arab Emirates. In these countries, residency incentives make it an attractive place to buy property, and the hotel industry is not immune to the effects.
While the war has hit the tourism industry in the region, the tourism sector is expected to rebound in 2022. Nevertheless, the war in Ukraine may spell trouble for Central and Eastern Europe. The country’s economic outlook is not good and is likely to remain dormant until the conflict is resolved. And while the influx of refugees and business travelers has hit the hospitality industry in a big way, the lack of tourism infrastructure could be detrimental.
Midscale hotels perform well
While there are concerns regarding the future of Eastern Europe, investors have stopped dealing with these countries as a result of the Russian invasion of Ukraine. The turmoil in the region has also led to the suspension of many real estate deals, and German and Austrian banks are expected to curtail lending to the region as part of new government plans to focus on assets controlled by oligarchs and other financial supporters of the Putin regime. Ukraine is home to most midscale hotels and independent properties, accounting for about 75% of the total room count.
The most immediate impact on the Ukraine hospitality industry has come from the war. While most major brands have shut down operations, many remain open for temporary shelter for internecine refugees, international missionaries, and journalists. Hotel executives liken the situation to a catastrophic hurricane. Despite the challenges, midscale hotels are doing well. PKF hospitality group executives compare the current situation to a catastrophic hurricane. While occupancy levels are low, demand is growing.
While the situation is tense, the crisis has triggered a slew of challenges for the hospitality industry. As the largest European nation has seen its own economic crisis in the wake of Russia’s invasion of Ukraine, western hotel companies are slowing development and sales activities in the country. Fortunately, these hotels are responding to the crisis by supporting their owners and contributing to relief efforts. Despite the recent political instability, they are able to maintain high standards, which helps them maintain a strong reputation.
Russian hotel brands may withdraw from their portfolios
The Kremlin has threatened to nationalize the assets of any corporation leaving the country, but this threat does not directly apply to hotel brands. As franchisees often have little control over their franchises, such threats are unlikely to be as severe for Russian hotel brands as they would be for foreign manufacturers. Still, the threat makes it difficult to view the Russian market as a safe investment or justify the presence of U.S. hotel brands in questionable countries.
Western brands are also locked in franchise agreements. Many have held them for decades. Marks and Spencer stores have been operated by a Turkish company since 1999, but the brand has ceased shipments to FiBA. Burger King owner Restaurant Brands International has said it is considering a temporary halt to its operations in the Ukraine and Eastern Europe, including the Crimean Peninsula. This means that the company has been forced to close some of its restaurants.
Accor and IHG also operate hotels in the country under franchise agreements. But they said they would evaluate their ability to continue operations in the region and whether they should terminate their franchise agreements. Franchise agreements are agreements between the franchisor and franchisee wherein the franchisor establishes a brand name and pays the franchisee a fee for the right to use it. In the event that the franchisees cannot remain open, the company would be forced to close their hotels and resorts in Russia.
The recent war between Russia and Ukraine threatens to turn the region into a bloodbath. Not only is the stability of the region in doubt, but the travel industry is also in danger. Accor has the most exposure to Eastern Europe and Russia. CEO Sebastien Bazin addressed the situation in his remarks to analysts in June. Despite the risks, Accor is still able to provide valuable service to remaining tourists. Accor is even hoping that some of them are loyal customers.
Accor has six hotels in Ukraine, while Hilton, IHG, and Marriott each have one hotel in the country. In Russia, Accor has 29 hotels. This compares to nineteen hotels by rival companies, including Marriott and Hilton. Accor’s network includes Mercure, Movenpick, Novotel, Pullman, Rixos, SO, and Swissotel.
According to BHN, Accor’s CEO cited the sanctions that were put into place by the EU, UK, and US against Russia. This decision to shut down any hotel that operates in Russia could put them at risk for losing their licenses and guests. The company is pursuing legal action and sanctions to protect its assets in the region. If the Accor Hotels With the Most Exposure to Ukraine Russia and Eastern Europe have not been closed or abandoned, it is not clear how long that can continue.
While a number of hotel chains are reportedly withdrawing from the country, only a few have publicly issued a statement about this decision. Radisson Hotel Group, for example, acknowledged the UHRA and SATD concerns and stated that it will continue to monitor and evaluate the situation. The only hotel group that has not made a public statement about the situation is a member of the Swiss Association of Accor Hotels.
One of the biggest concerns in Russia and Eastern Europe is the situation with the Ukraine war. The region is currently facing a humanitarian crisis that is making the lives of many people in the country unbearable. To ease the strain on these people, the company is helping them by providing safe water, medical care, and meals in their hotels. Additionally, the company is working with charities in the region, like CARE International and World Central Kitchen, to provide aid to those in need.
While this conflict poses a security risk, the travel industry isn’t the only sector that stands to lose. Hotels in Eastern Europe and Ukraine are particularly vulnerable. A recent study by Accor uncovered that the region is home to one of the highest concentrations of international hotel companies. In the case of Accor, the company’s CEO addressed the situation during a recent earnings call with analysts.
The company’s Russian operations have not been affected by the crisis, though Marriott’s properties in the country make up less than one percent of its total fee volume. Marriott is also not planning to suspend operations in the region, and its Russian properties are just a small percentage of its global portfolio. However, the company has suspended new development plans in Russia and has suspended corporate offices in Moscow. Furthermore, the company hasn’t halted operations in Russia; in fact, its 26 hotels in Russia are a mere fraction of the company’s global footprint.
IHG is one of the largest hotel companies in the world, with 29 properties in the region. While many hotel brands are struggling, IHG has pledged to help the region in the long term. The company has partnered with hotel owners in neighboring countries to provide temporary lodging for refugees. In addition, IHG has donated to several charity groups, including CARE International and the International Federation of Red Cross and Red Crescent Societies. These donations will help support humanitarian efforts in the region and get aid to those in need in Ukraine.
In the immediate term, IHG’s exposure to the country remains limited. Although it has a low direct exposure to Russia, IHG’s revenue growth is sensitive to the global economy. While estimates for global economic growth have been revised downward, IHG’s RevPar will still suffer. Investors should focus on the longer term. In its third quarter, IHG reported net system growth of 0.6%, mainly due to room disposals arising from estate reviews. While weak system growth in 2020 is a concern, this is understandable given the current operating environment.
IHG owns a number of hotel brands, including Holiday Inn Express. The company has more than eighty thousand rooms throughout its system, with the latter representing nearly 25% of them. The company is also under a variety of franchise and management agreements, so nearly all of the company’s hotels are tied to some form of asset management. Even so, IHG has been acquiring hotels in Ukraine, Russia, and Eastern Europe.