Olympics Postponed: What It Means for Hotels

On Tuesday 24th of March, the Covid-19 pandemic won out. Japan’s Prime Minister Shinzo Abe and the International Olympic Committee agreed to postpone the Olympics to no later than summer of 2021. While the exact scope and dates of the Olympics still remain unclear, this is one of the direct impacts of the Covid-19 virus that will definitely place additional strain on the global economy.

Japan has invested over 10 billion USD in the Games, and the delay will undoubtedly increase costs. Private economists estimate that Japan’s overall domestic financial loss could reach 5.42 billion USD.

Many investors in the tourism industry and the hospitality sector were expecting substantial returns from the Olympics. Like other Tokyo hotels, Imperial Hotel is suffering from the sudden decline in foreign visitors due to the coronavirus, seeing occupancy rates lower than 50% compared with 80% in the same month last year. The postponement will further worsen the hotel’s annual revenue as a “significant amount” of bookings came from the Olympic organizing committee. Hotels in Tokyo were expecting a spike in guest arrivals, with hotels spending over one billion USD on renovations.

“A boom in hotel construction and overinvestment in the hospitality sector in recent years had already sparked concerns over the sustainability of the market, even before the spread of the coronavirus,” reports Reuters.

While some economists are pessimistic about the postponement, other analysts believe the impact may be modest. Considering the situation the entire world is in, with tourism being hit the hardest, and consumption of hospitality services set to decline, “the additional impact of postponing the Olympics is fairly modest,” Oxford Economics’ Stefan Angrick told CNBC.

It might, therefore, be worth looking at the impact upon the hospitality sector of previous Olympic Games. Inevitably seen as an opportunity to cash in, the Olympics usually lead to an increase in rooms and rates. Looking back to 2016, Rio de Janeiro saw occupancy rise by 26%, while ADR rose 200% during the games, leading to a RevPAR increase of 278%. In 2008, Beijing achieved a rise in ADR of 250%, yet RevPAR ‘only’ increased by 184% - as occupancy rates actually declined by around 18%. One phenomenon which is sometimes forgotten is that many people try to avoid cities which are hosting major events in order to avoid the crowds and the high prices. In 2012, London saw little change in occupancy, but managed to raise ADR to a level high enough to boost RevPAR by 44%.

It can be argued that Rio’s increase in occupancy came from people who would not ordinarily have been in Rio in August choosing to visit the city for the games. It is low season in the normal scheme of things, but the strong police presence and focus on security for foreign visitors would have made Rio more attractive than usual. The challenge for Rio, of course, was to fill those rooms afterwards.

London is a major global city, and August is the high season. The Games would have attracted visitors, and deterred others, but not enough to make a significant difference overall. A slight price premium was extracted from the regular visitor numbers.

In the case of Tokyo, August is a brutal time of year to visit. The temperatures and humidity are uncomfortably high - with this in mind the marathon has already been moved out to Sapporo to provide respite for the athletes. The Games will provide a reason for people to visit at a time when they normally wouldn’t. Occupancy may then rise a little. In the case of ADR, prices are already high in Japan, and it will be difficult to push them significantly higher; see the case of another expensive city, London. In contrast, Beijing and Rio both have lower rates in normal times, and had more room to raise rates to a much higher level that overseas visitors would still be willing to pay.

Where Tokyo, and previously London, will benefit is that they are more likely to be able to fill any additional rooms on the market over the longer term. Put simply, the Olympics are less of a big deal when you are already a city of Tokyo’s global stature, and the impact is likely to represent a smaller change than is the case in lesser cities. In August 2020, Tokyo hotels will be missing out, but in 2021, they will to a certain extent cash in. However, the overall impact of the Games, whether postponed or not, will be dwarfed by the impact of Covid-19.

In the context of the pandemic, the postponement of the Olympics has been inevitable since the early days of the crisis. Not only must the health of athletes and all parties involved be an absolute priority, but the Games themselves should serve as a global celebration, and will best be held when the world is ready and able to enjoy them as the Olympic Games deserve to be celebrated.