Of all the industries devastated by the battle against the new coronavirus, it is hard to think of one more damaged than hospitality. When countries close their borders, the global airline industry grinds to a halt, and billions of people are told to stay home, it spells big trouble for the hotel sector.

With demand disappearing almost overnight, hoteliers around the world have had to let millions of staff go. In the U.S. alone, 4 million hospitality workers are expected to lose their jobs as a result of the crisis, according to the American Hotel and Lodging Association.

In Europe, the region worst hit by the virus to date, hotel occupancy had fallen to 12% by March 28, according to data from select countries presented by travel intelligence specialist STR during an April 2 webinar. Most European markets face zero demand in April and May, added STR, which expects the region's hotel sector to be negatively impacted for eight months, four of which will see it severely impacted.

"It's certainly the most challenging situation the sector has faced since the recession between 2008 and 2010," said Christian Mole, partner and head of hospitality and leisure at multinational professional services firm EY. "But we're on very different ground; this is something we haven't seen before."

STR estimates there will be up to 93 million fewer trips made to and within Western Europe in 2020 due to measures to control the spread of the virus and their residual impact. Almost 400 major industry events and conferences — a huge source of revenue for the hotel sector — have been postponed or canceled in the region, STR's Natalie Weisz, senior manager for research and analysis, said.

STR expects the number of European hotels that have closed as a result of the virus to be significant, although it is still collecting data to determine the figure as it did not previously track closures.

Matthew Pohlman, who acts on behalf of a number of multinational hotel operators, investors, developers and private equity firms in the Europe, Middle East and Africa region as a partner in global law firm Goodwin's real estate group, said in an interview that the scale of hotel closures is causing "unprecedented and continuing high degrees of uncertainty" in the sector.

There is a level of goodwill between owners and operators as they work together to "see the crisis through," he added. Still, the longer the current period of lockdowns and travel restrictions continues, the greater the strain on those relationships.

"If this is protracted, with a number of voices suggesting we're four to six months out from seeing meaningful recovery, I think you get that far out and people may start to take a sharper view of how to protect their interests," said Pohlman.

Among the European city markets expected to be most severely impacted by the virus is Barcelona, where revenue per available room for March is forecast to have fallen by over 50%, according to STR. City markets where RevPAR is forecast to have fallen by between 40% and 50% include Milan, Rome, Madrid, Dublin, Amsterdam, Prague, Vienna, Brussels and Munich.

Some hotel business models are more exposed to the fallout from the crisis than others, said EY's Mole. "It's more your owners who are actually employing [large numbers of hotel] staff, who have the big fixed costs they need to support, that one worries about," he said.

Mole expects to see "some distress" as a result of the crisis, with small, independently owned hoteliers, highly leveraged groups, and seasonal businesses most likely to struggle.

European property investor Invel Real Estate owns a portfolio of seven hotels in Greece and Cyprus, which were preparing for a busy summer season, said Luv Shah, senior partner at the company. Invel's Aphrodite Hills hotel asset in Paphos, Cyprus, relies almost entirely on business from German tour operator TUI AG, said Shah, which has invoked "force majeure" clauses in contracts and temporarily stopped payments to hotel owners, including Invel, in response to the crisis.

"Most seasonal hotels will not see much of a season this year, because even if things start to return back to normal by around June, you can't just turn a hotel on overnight to get set up for a season. Most likely, we'll end up with a very difficult year this year overall," said Shah.

Opening up

For the European hotel sector generally, the speed with which hotels can recover will depend on how quickly demand returns following the lifting of government travel restrictions, said Pohlman. "Reopening doesn't mean an immediate return to prior demand levels," he said. "And in the same way, reopening doesn't necessarily mean starting day one at the same level of staffing. It will take some time to get the demand levels back."

EY's Mole said the period between reopening and getting back to the levels of occupancy pre-crisis would be the most testing for many owners and operators. It is during this time, after which government measures to support employees' wages are likely to be withdrawn, that cash constraints could begin to cause "tensions" between owners and operators, he said.

"If the hotels are operating at 40%, 50% occupancy during this sort of recovery phase, they're still going to have pretty much a full fixed-cost base," said Mole. "How they're going to get through that period is going to be a challenge."

While STR's Weisz forecasts a "big bounce-back" for the sector in 2021, she does not expect demand to return to pre-crisis levels until 2022.

For Goodwin's Pohlman, the vast uncertainty that still surrounds the eventual impact of the virus on the global economy means the hotel sector's journey to recovery remains impossible to map. "How long that road is, I think, is very much an open question."