The resurgence of the pandemic, restrictions at borders and the absence of business trips will delay recovery for the European lodging sector despite the better-than-expected summer season, Fitch Ratings says in its new report. Room rates as well as occupancies will remain under pressure in this revisited scenario.

Strong domestic tourism has been essential for the temporary 3Q20 upturn, with budget regional hotels standing out as preferred options along with private rental and outdoor accommodation. However, 4Q is traditionally highly dependent on corporate events, conferences and Christmas attractions, which have not resumed and are unlikely to in the short term. Revenue per available room in 2020 and 2021 could end up 60%-65% and 35% respectively below past years' levels, reflecting the sector's high exposure to pandemic-related disruption.

Harmonized easing of movements, air connectivity and restoring of business activity will be key to normalizing the sector. These factors are directly linked to the availability of a vaccine or treatment, but safety protocols by hoteliers will remain a key element for travellers.

Ten downgrades and generalized Negative Outlooks across the rated European lodging portfolio reflect the significant disruption and weak 1H20 performance. The most affected companies in the next six months will be those relying on corporate activities and group travel. All hotels' cash flows have been severely affected despite government support via demand incentives, extended furlough programmes and ample liquidity sources. Maintaining adequate liquidity will remain a key ratings performance indicator for the sector.