Curve for the virus may be flattening in Serbia and Montenegro, but so is the hospitality and leisure market

The question of survival in the hospitality & leisure market does not yet appear to be on the agenda, since this sector is considered a luxury and non-essential.

Many key stakeholders, however, agree that this market will suffer long after the coronavirus pandemic has ended and the global travel ban is over.

The hospitality & leisure sector used to be one of the fastest growing in the world, employing around 330 million people. Due to huge loses and estimates that tourism could fall internationally by 20% to 30% in 2020 (according to data from the World Tourism Organisation), big changes are expected in the hospitality & leisure industry in the areas of services, customers, pricing, restructuring and sales.

Serbia

Serbian hoteliers began closing hotels in mid-March 2020. Since that time, the sector has suffered immense losses of approximately 90%, raising the question: how can this sector manage the crisis and survive this hit?

The core problems of the Serbian hotel & leisure market include:

• Minimum or no revenue, which places pressure on management to cut costs as fast as possible;
• The question whether hoteliers will be able to avoid lay-offs;
• Uncertainty of the duration of the lockdown; and
• Uncertainty whether a second coronavirus wave will occur once hotels have reopened.

State aid measures in Serbia are currently not industry specific or tailored for the hotel & leisure sector. It is expected, however, that Serbian hoteliers will, in the coming weeks, lobby the government to implement more specific plans to help the hospitality sector. Recommendations are likely to include official endorsements for Serbian citizens to spend their holidays in Serbia in order to help the tourism industry get back on its feet and avoid the risks of travelling abroad.

The European Investment Bank (EIB), in collaboration with local partners, will work to support recovery of hard-hit sectors such as tourism and hospitality. Such assistance and financing will also be available in the western Balkans. These assistance packages are expected to be strengthened with aid from other international and European financial institutions. Also, news that China’s hotel market is showing a marked recovery is a positive sign.

Montenegro

Montenegro, whose economy relies on tourism for 25% of its GDP, is now facing a challenging period. The Governor of the Central Bank of Montenegro has stated that if the crisis lasts for 60 days, Montenegrin tourism will decrease by up to 90%, which will have a profound effect on the overall economy.

Some early foreign analyses state that Montenegro is listed among 15 countries whose tourism sector will suffer major consequences as a result of the pandemic. In particular, the IMF projects a 9% decrease in the Montenegrin economy in 2020, which is significantly worse than the 5.7% drop the Montenegrin economy suffered as a result of the 2008 crisis.

Unlike Serbia, the Montenegrin government (led by Prime Minister Duško Marković) introduced the second state relief package, on 24 April 2020 that was tourism-oriented and may help hoteliers offset the worst effects of the current crisis.

Consequently, hoteliers will need to start now to meet the challenges of the present crisis and implement the changes needed to run their businesses and survive. Our advice for coping with the crisis early on includes:

• Reach out to authorities in order to apply for state aid subsidies (if applicable);
• Regarding employees, consider strategic preparations (e.g. calculate risks and costs) if redundancies are unavoidable, but also consider implementing cost reductions by re-evaluating travel bonuses and allowances, and consider temporarily decreasing salaries;
• Regarding commercial considerations, notify partners that the crisis represents a force majeure event and then try to discuss or renegotiate terms with counterparties in order to avoid obligations to pay high statutory or contractual interest in case of non-payment or suspension of payments;
• If applicable, consider suspension or reduction of rental payments;
• Involve outside consultants (e.g. financial, legal) to assess any restructuring plan and consider optimising legal structures;
• Implement closer cost controls and monitoring along with weekly liquidity forecasts;
• Consider applying for postponement of tax payments;
• Rewrite internal protocols, such as training staff on new procedures that incorporate social distancing requirements;
• Amend the hotel’s coronavirus prevention plans and make these plans available to employees and guests to boost their confidence;
• Implement digitalisation and adapt to new technologies, such as the automatization of various processes, including new check-in procedures so that ‘human contact’ is minimised or eliminated;
• Consider creating a more flexible cancelation policy for reservations; Consider applying low season strategies throughout the year and re-evaluate promotional plans (e.g. offer lower rates to healthcare workers).

For more information on the effect of the current crisis on Serbia’s and Montenegro’s hospitality industry, contact your regular CMS advisor or local CMS experts.

Co-authored by Tamara Samardžija and Mina Radonjić