Corona empties Venice | status analysis after quick check on site

Corona leert Venedig

The coronavirus crisis has impacted many areas of life but only few as dramatically as the global travel and tourism industry. What used to be top destinations of city tourism have been especially hard hit.

The cities in Europe most overrun by tourists before corona according to Forbes Magazine were Venice, Dubrovnik, Barcelona, and Prague. With only 50,000 residents and 25 million visitors per year, Venice is by far the leader in overtourism in Europe. For this very reason, I didn’t find Venice to be an attractive destination for a long time. And how is the situation now—after or during the corona pandemic?

My trip to Venice last week was interesting in several aspects. Just like in a burning lens it was visible and even more palpable how profoundly the coronavirus crisis has affected this city.

Free seats at the Rialto Bridge
Empty space at St. Mark’s Square – not at 6 a.m. but right before noon.

Tourists from the U.S. are by far the most important and lucrative target group for the big hotels in Venice. However, flights to Europe are still heavily restricted. As a result, some hotels are only partially open (San Clemente Kempinski with 25% of its rooms) or have announced in the past days that they will reclose shortly (St. Regis, Marriott’s flagship hotel). It’s not really a fair and square game. While Italian destinations are still advertised in England, Italian press releases are—again—announcing Italy’s closure (St. Regis). This press release talks about one year while employees were informed about a closure for 27 months. Hotel groups are likely not so sure about how things will ultimately turn out. Who knows how long this crisis will last. And the pressure from the areas of financing, compensation, and the risk of delayed bankruptcy filings are palpable.

It’s clear that the situation in Venice is the perfect storm for hotel and vacation rental owners. When a rental is booked only at 25 to 40% of its capacity, the operators won’t be able to meet the business plan by a long shot. As a result, many owners and (closed) funds won’t come to an agreement about the valuation rate with auditors and banks at the end of the year. And with Venice being one of the key Airbnb locations worldwide, not only hotels but also condo and apartment rentals will be affected. Without these lucrative short-term rentals, many apartments and condos with hefty financing will drown in the floods.

During the insurance crash in 2002 (which the public was barely aware of), the German legislature felt compelled to invent the new balance sheet item  “hidden burden” (see link Frankfurter Allgemeine Zeitung) to avert the bankruptcy of the entire sector.  As a result, write-offs of €20 billion that had become necessary immediately—an amount that seems ridiculously low by today’s standards—were prevented. Similar measures will likely be inevitable with the coronavirus crisis—just the volumes will be much higher.

The bottom line

Even during this crisis, Venice won’t sink. This much is clear. But many of those for whom business was good before the corona crisis will realize that they won’t survive the winter and, as a result, won’t live to see the next spring from a financial standpoint.

  1. The problem is not just missing tourists. The current situation also relentlessly brings to light how little many providers have invested over the years. The Vikings and Teutons in their Pampers bombers have already shown up in Venice. But overpriced honeymoon suites for enamored American couples aren’t up for rent for this, without a doubt, financially strong target group. And South Tirol isn’t far, which similar to the North Sea, Baltic Sea, and the Alpine region is booked solid.
  2. The financial challenges for those who have invested little to nothing over the years far exceed the financing of the closing. Those who don’t bring their products up to date won’t find customers who will pay even close to the excessive shortage prices that were pushed in the phase of overtourism before corona.
  3. The cake—both in tourism and other industries—will get smaller as many people with median and smaller incomes will be faced with significant losses of income. The plans for layoffs in many industries are sitting in the drawers. No one wants to be first quite yet—but soon even that will no longer matter.
  4. Countries won’t be able to agree as quickly on additional stimulus payments as they did in the spring and summer, and the lack of government payments will have an immediate and stunning effect. Helicopter money (see  Wikipedia link) doesn’t have a ripple effect the way monetary policies do. Liquidity will simply be gone over night for many.
  5. Regardless, the stock exchanges can continue to operate. Easy money and purchases by the Federal Reserve in combination with drastic corporate reorganization measures can have a more stimulating effect on investors than we might think today. Venice is a good example:
    St. Regis owner, Marriott, with a market capitalization of still more than $28 billion will survive corona. After all, the stock is being touted for purchase on U.S. TV. The midsize and small hotel owners in Venice, by contrast, aren’t publicly traded and don’t burden the indexes with their losses and bankruptcies for now. But the sentiment at the markets may very well shift later on when it becomes clear that corona isn’t just a spring flu and that many destroyed lifeworks won’t just rise from the ashes even if the virus itself will lose its terror with the availability of drugs and vaccines.
  6. A big opportunity of corona is that something will happen that has happened only rarely for years: unprofitable market participants are eliminated due to closure or bankruptcy. The creative destruction as described by Schumpeter generates room for new things, and this very room presents potential. We are convinced that this potential will be used and hence we are optimistic in the medium term. Despite this opportunity we’re afraid that the next months will be much more uncomfortable for many than is widely expected today.
  7. Empty Canale Grande,
  8. but the music keeps playing …

even if it’s a platitude that coffee at St. Mark’s Square is overpriced and rarely ever tastes good. That has always been the case and will likely never change.

In Venice too the corona crisis has not only losers but also winners. While seats in top-class slow food restaurants are still available for the moment, they are booked up in the end. Quality simply sells well, even and especially in a crisis.

Auch in Venedig kennt die Corona-Krise nicht nur Verlierer, sondern auch Gewinner. In hochklassigen Slowfood-Restaurants bekommt man zwar kurzfristig noch Plätze, aber ausgebucht sind sie dann doch. Qualität läuft eben meistens und gerade auch in der Krise.


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Georg Oehm

Georg Oehm founded Mellinckrodt & Cie, in Zug, Switzerland, in 2008. He served as general manager and partner in a financial communications boutique in Frankfurt am Main, founded the CFD Association e.V. and served as its first general manager. He worked in business development and in the M&A business at the Metallgesellschaft AG for five years, followed by a five-year tenure in the field of special restructuring projects. From 2011, he was a member of the administrative board at the Zenergy Power Plc and at the Synety Group Plc from April 2011 to January 2016. Dr. Oehm serves as chairman of the advisory board at InCity Immobilien AG. He completed his Ph.D. at the University of Kiel, department of economics and social sciences. He started his career as a banking apprentice at the Dresdner Bank in Frankfurt am Main. Subsequently, he earned a degree in business administration in Mainz and Kiel.

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