Bank of Spain report shows hotel sector is the most debt-crippled in the country

The hotel sector in Spain is one of the most debt-crippled in the country, according to a worrying new report.

Two years of slow business caused by the Covid-19 pandemic, as well as soaring inflation, has crippled the hotel industry financially, according to the Bank of Spain’s latest report.

The Aehcos association of hoteliers on the Costa del Sol said the study showed the debts of hotel companies have increased, between 2017 and 2021, by 18.4%, given that the pandemic caused this figure to rise to 42.4% in 2021, from 35.8% in 2017.

Aehcos president José Luque said the data is worrying: “Our sector is in the process of recovering pre-pandemic marketing levels, but the profitability of establishments is falling and will fall further due to macro and microeconomic issues that make our costs inflexible".

“We certainly have to prepare ourselves because the dynamics of growth in our room rates will not be sustainable in the medium and long term.”

ERTE (furlough scheme) measures introduced by companies to suspend and reduce workforces during the pandemic helped at the time, but have contributed to the financial burdens in the sector, he added.

"Not only is the payment of interest of around 1.8% of the ICO credits when the Euribor was in negative figures, but also, given the need to apply for mortgage moratoriums, the temporary lengthening of debts has increased having to assume the corresponding capital shortfalls by the sector," Luque said.

Burdens

Financial burdens due to interest rates for hotel and hospitality companies, since 2017, have more than doubled.

"If in 2017 the interest derived from financing accounted for 9.4%, in 2021 this burden has risen to almost reach 20%," the association pointed out.

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"It is said that the hotel sector is, after professional, scientific and technical activities, the second sector with the highest charges derived from financing of the 14 sectors analysed by the Bank of Spain. In fact, of these 14 groups of activity, up to ten have decreased their financial burden due to interest, while of the four that have increased, the hotel and catering sector is the one that has increased the most, reaching a rise of 10.5 percentage points,” it added.

Another factor that has had an impact on the profit and loss accounts is the increase in the minimum wage, which between 2018 and 2023 has increased by 46.75%.

"The forecasts are not at all flattering, since the economists of the US Federal Reserve predict that during the fourth quarter of 2023 and the first quarter of 2024 there will be a recession with consequences for the whole of Europe and has left the door open to a new rise in interest rates from June of this year," Aehcos said.

"We must be cautious and be very aware of the constant setbacks in the economic situation and the evolution of inflation, given that although the commercial data for the first five months of the year are cumulatively above 2019," Luque added.

"The standstill in demand that we have noticed since mid-May, together with the economic difficulties that the sector is going through in terms of its obligatory financing, encourages us to be very prudent and realistic."