The economic crisis and Hospitality Industry in EU Essay Example for Free

The economic crisis and Hospitality Industry in EU Essay The report prepared on the Economic crisis and the hospitality industry in Europe, is an attempt to have an insight on the major reasons responsible for the economic crisis in the European Hospitality sector. It also takes the attentions towards the effective and strong measures taken by the Nation at the EU level and the national level to survive during the bad economy time. It was identified that the option of reducing their operating costs was one of major strategies followed by the enterprises in the tourism sector of Europe, along with this the economic crisis gave a strong reason for the small enterprises to review their business methodologies so as to be able to manage their business during the crisis period and also to increase the ratio of their profitability in the future times to come. The European Hospitality sector has survived in the year 2009 and it is pacing towards the recovery path in the current year. Studies reveal that the European hospitality industry will be able to stabilise itself by year 2011 and it is sure that Europe will definitely be able to bring back its economy as they all stand united at times of need. Commission President Jose Manuel Barroso said â€Å"Yes, Europe has the unity, the confidence and determination to win this battle†. Introduction Global economy crisis has left no sector untouched but it can be argued and debated over that the most adversely affected sector in Europe is the entertainment and tourism sector. In other words, we can straight away state that Europe’s Hospitality industry is the most badly hit sector in the economic crisis. The prime reason related with this is that the leisure and tourism get immediately and easily affected with the economic fluctuations going on in any country or location. Almost all the travel activities require an optimal amount of expenditure to be made by an individual for the fun, entertainment and relaxation of his family or friends and people are comfortable spending money for fun only at the favourable economic times. At the time of recession or the economic crisis, they would rather prefer to save their money for the unforeseen hard times that they might have to face in their future time to come. Thus they might consider saving their extra money for their basic necessities like shelter, food and other family requirements. Although, this does not mean that people stop travelling completely but their frequency of travelling might get a bit down because of the economic fluctuation and the tourists and travellers might adapt the idea of spending bit less on travel than their planned expenditure. Experts state that the tourism and hospitality business that can adapt to the situation that they can provide the best quality of services and customer satisfaction on a tighter budget too can only survive at the time of economic crisis. There is a possibility that the customers/travellers do not expect luxurious kind of services but would be interested if they get the low cost services and this fundamental fits perfectly to the airline and the hospitality industry of Europe, too. Trevor J Ward, Managing Director, W Hospitality Group, told that there has been a loss of confidence in the whole banking system in Europe, which has reduced lending to businesses and individuals, and this reduction in credit is affecting businesses and consumers alike. The fall in the house prices has affected the other business activities and consumer spending too and it has in a way affected the European hotel industry. HOTREC (Confederation of the National Hotel and Restaurant Associations in the EC) HOTREC is the name for the trade association of hotels, restaurants and cafes in Europe. They have combined together 40 national hospitality associations in around 24 countries across Europe. European hospitality industry comprises of almost 9. 5 million workers having network of Around 1. 7 million enterprises. HOTREC works towards the objective to promote the hospitality industry in Europe. Their motive of execution is to create more number of jobs for the European people and thus boost the economy of Europe by enabling the hotels, restaurants and cafes to create more job opportunities. HOTREC works extensively towards achieving a competitive and stable tourism industry in Europe. All the policies are made and implemented by HOTREC with the vision to encourage the creation of environment positive for the development of the hospitality sector. The Economic crisis and the hospitality industry The economic crisis has left no sector untouched and so the European hospitality industry is no less affected with this economic crisis. There are various zones or segments of the tourism industry that has got badly hit with this crisis. It has directly affected the business travels which were quite frequent in Europe and was a key contributor in the profit earning of the European hotels and cafes but with this crisis the industry has seen tremendous fall down in the business travel of the people coming to Europe. Not only the business travels, but the business events like the conferences, the presentations and the seminars which were quite in trend in Europe also got severely affected with the economic crisis and this again has brought the profitability graph of the European Hotels and cafes. It is true that the although the industry has experienced a slowdown in the business travels and the business events, people are still trying to figure out the best deals in the lowest possible rates that fit to their budget and serve their purpose too as they are able to let their business function smoothly irrespective of this economic crisis. They also try to find out the hotels which can provide them with the basic services without asking them to pay a hefty amount for their stay in the hotel. In a survey conducted by DLA PIPER 2009, the respondents were asked the major reasons for their lack of confidence in the Europeans hospitality industry during this economic crisis and the survey consisted of a couple of questionnaires like the Struggling European economy, Lack of liquidity, Current operating performance of hotels, Time and cost restraints on consumer travel, Reduced business travel, Lack of confidence in Europe’s political leaders, Struggling US economy etc. Around 43% of the people considered lack of liquidity and almost 33% considered the struggling European economy to be the major contributors to the rapid downfall in the confidence level. A study stated that out of many other reasons required to cope up with the effect of economic crisis in the hospitality industry in Europe the low cost of credit can be considered to be an effective step fighting against the crisis of funds and it is believed that the European commercial banks will be the most active type of lender in the European hospitality industry in the coming year as they will work towards lowering their cost of credit and thus it will be beneficial to the hospitality sector which is struggling due to the economic crisis. Data about European Hospitality industry This question is of major concern that that how long will this economic crisis go and how will all the European sectors survive in this bad economy when the entire world is getting affected with this global economic crisis. Despite other sectors, the European hotel industry is getting severely hit with this crisis and this can be well understood by the data illustrated below. An analysis done by IMF, stated that Europe’s biggest economy, Germany will get severely affected during this crisis with a 5. 6-percent GDP decline in 2009 and a 1. 0-percent dip in 2010, while the GDP in the euro area, completely is expected to be going down to 4. 2 percent in 2009 and 0. 4 percent in 2010. The data reveals that the GDP rate will go down by 1. 5% in last quarter of the year as compared to the third quarter which is definitely a sign of concern and effective steps required to be taken to come out of this problem. Talking about the unemployment figures in the European hospitality sector in the year 2009, as compared to the numbers of year 2008, the statistics show that there will be a rise in the unemployment from 6,8% to 7,6% in EU27 and it will go up from 7,2% to 8,2% in Euro area. It is a matter of great concern and worry for the government of any country when they are experiencing a steady downfall in their GDP and their graph of unemployment is going high in any of its business sectors and that calls for the time when they all need to unite together to fight against this severe crisis as this is the indication of a very big crisis for that particular nation and the data clearly states that Europe is struggling badly with this situation and needs remedial measures which are effective enough to bring Europe’s hospitality industry to come out of this situation. The data also describes that there has been a visible drop in the European economic sentiment indicator which is also an important reason of the low confidence in the European hospitality industry. Figures state that the Economic Sentiment indicator, in short termed as ESI went down by 2. 2 points while it was earlier stable at 61. 0 points during Janaury-09 –February 09 in EU27. While it went down from 65. 4 points to 63. 6 points thus showing a downfall of 1,8 points in the Euro area. When the entire globe is suffering from this problem of recession and bad economy, Europe is also facing the hit back in the tourism industry. A study revealed that the tourism prospects in the year 2009, for European cities will be a stage of stagnation or it may even go down by around 3% than the earlier times and figures. A survey conducted by Deloitte and Touche on the European hotels revealed that the occupancy rate of rooms in the hotels of Europe went down from 69. 3% in the year 2007 to 66. 9% in the year 2008. Although all the major cities of Europe have suffered due to this crisis but the most badly affected cities are Rome, Dublin and Prague. According to the Eurobarometer survey conducted on the 27,000 tourists coming to 27 EU countries for their holidays with family and friends in the year 2009 , the study reflected that around 1/3 of the people stated that there has been a drastic change in the plans which they make for their travel and leisure by decreasing their accommodation cost budget, out of which around 38% belonged to the category of completely swiping out the option of going to Europe for their holidays, others stated that there will be no change in their cost of accommodation budget due to this economic crisis. The study also stated that to fight against this crisis and still not completely go away with their idea of going on holidays, they would rather do little bit of adjustments and comprises to fit the holiday budget to their pocket. 15% of the surveyors stated that they would save on accommodation, 23% mentioned that they would prefer to go on vacation in the low season when the prices will automatically come down and they do not need to cut down on their estimated budget, 23% mentioned that they would try to cut down on their restaurant expenses and 30% mentioned to cut down their shopping budget to manage their vacation and enjoy with their families and friends. Economic Crisis with low confidence The Economic crisis when followed with the lowering of confidence in any sector becomes a reason of great concern and worry for the government of any nation and the situations like this needs an immediate attention and plan of action as if it is not dealt in time it may lead to adverse consequences for the economy of any nation. Such thing was experienced by the European hospitality industry in the year 2009. The data gathered by DLA Piper 2009, Europe Hospitality Outlook survey on the reasons of low confidence on the European hospitality industry during the time of economic crisis were found to be Struggling European economy, current operating performance of hotels, time and cost restraints on consumer travel, Lack of liquidity (debt or equity), Struggling US economy, Reduced business travel and last but not the least Lack of confidence in Europe’s political leaders. A survey done by DLA Piper’s 2009 Europe Hospitality Outlook Survey stated that almost 84 % of participants consider the European hospitality market to be bearish. Majority of the participants of the survey did not expect the European hospitality industry to come back to its original state until year 2011. Almost 70% of the people have cut down on their business travel due to the economic crisis. The survey also tried to gather numbers regarding the investment options in the European hotel industry and it found that around 71% of respondents believe that investment in Sustainable hotel development is a long-term trend. And there is a widespread risk of bankruptcy for European hotel chains. The major concern of the participants was the clause passed by EU Parliament regarding the potential removal of an EU country’s right to opt-out from the Working Time Directive which limits to an employee’s working hours to forty eight hours only. They mentioned this to be a very strong reason to put a negative impact on the European hospitality industry. Recovery Plans of European Hospitality Industry It is a fact that the European hospitality industry, along with the other sectors has suffered major setbacks in the year 2009 due to the economic crisis and this can be well described and understood by the data gathered by DLA Piper 2009, Europe Hospitality Outlook survey. The survey revealed that almost 84% of the participants mentioned the European hospitality market to be the bearish one when queried regarding their confidence in the European economy they stated Expected rebound of European economy, Foreign investment in European market, Abundance of equity capital available for investment, Expected rebound of US economy, Investment opportunities created by financial crisis and Confidence in Europe’s political leaders as the factors that in any situation will let the European hospitality industry come out of any such crisis in the present time and in the future times to come. European hospitality industry along with the major tourism associations like WTTC, UNWTO, HOTREC and PASTA are quite optimistic towards the idea that European hospitality sector will be able to cope up with this economic crisis and will easily survive this hard economic time. European tourism sector has faced a lot of obstacles till the time it has reached the 21st Century and developed such face of tourism for the entire world. Although, it is a true fact that this sector will go through hard times in the next coming months but the enterprises which are flexible enough to adapt to the required business model and plan their strategies keeping in mind the existing scenario will easily be able to survive and develop a strong platform for their existence in the long run in the European Hospitality industry. The recovery plan to successfully face the problem of economic crisis has been divided into a few segments or divisions so as to leave no stone unturned to fight with this scenario and bring back the economy to its stable state. It was segmented as 1. Recovery at EU level 2. Recovery at National Level We will discuss in brief the steps and measures taken at both the levels to beat the Economic crisis. 1. Recovery at EU level The European government considered dealing with the economic crisis quite seriously and so they planned the various meetings of the EU heads of State. They all mutually agreed upon following three lines of actions so as to come out of this situation. First one was to promote the financial stability in such a way that the confidence level of the people gets a boost again on the government along with the European Economy which is badly affected with the economic crisis. Second plan of action was to get the real economy to the shape where it was earlier, and third one was the most important one. It was to stay tightly united to fight against the crisis and to work together at the global level. The third measure sounded bit simple to sate but it was the most effective plan of action to get out of such a critical situation. Several measures were taken by the Government at the EU level out of which one measure specifically taken by the EU state with regards to the hospitality industry was to change the existing VAT Rate system. The new provision stated that all the member states will be granted the permission to apply for a reduced VAT Rate for the restaurant services. The current provision had this option to only 11 members so now this will be applicable to all the member states in EU.