The hotel and catering sector is the most debt-ridden in Spain since the pandemic

The hotel and catering sector in Spain is one of the most debt-crippled in the country, according to a new report from the Bank of Spain, after two years of slow business caused by the Covid-19 pandemic and soaring inflation that has increased costs.

The AEHCOS association of hoteliers on the Costa del Sol said the study showed that the debts of hotel companies have increased by 42.4% since 2021.

AEHCOS president, José Luque, said the data is very worrying: “Our sector is in the process of recovering pre-pandemic marketing levels, but the profitability of establishments is falling and will fall again due to macro and microeconomic issues that make our costs inflexible".

“We have to prepare ourselves because the dynamics of growth in our room rates will not be sustainable in the medium and long term in relation to rising costs.”

ERTE measures, the same as furlough in the UK, introduced during the pandemic helped companies to suspend and reduce workforces at the time, but have contributed to ongoing financial burdens in the sector since the pandemic ended.

"Not only is the payment of interest of around 1.8% of the ICO credits when the Euribor was in negative figures, but also, given the need to apply for mortgage moratoriums, the temporary lengthening of debts has increased having to assume the corresponding capital shortfalls by the sector," said Luque.

“Financial burdens due to interest rates for hotel and hospitality companies, since 2017, have more than doubled. If in 2017 the interest derived from financing accounted for 9.4%, in 2021 this burden rose to almost 20%," the association pointed out.

After professional, scientific and technical activities, the hotel sector has the second highest charges derived from financing of the 14 sectors analysed by the Bank of Spain. In fact, of these 14 groups of activity, ten have decreased their financial burden due to interest, while of the four that have increased, the hotel and catering sector is the one that has increased the most, with a rise of 10.5 percentage points.

Another factor that has had an impact on the profit and loss accounts is the increase in the minimum wage, which between 2018 and 2023 has increased by 46.75%.

"The forecasts are not good, since the economists of the US Federal Reserve predict that during the fourth quarter of 2023 and the first quarter of 2024 there will be a recession with consequences for the whole of Europe, which has left the door open for another increase in interest rates from June of this year," AEHCOS said.

"We must be cautious and be very aware of the constant setbacks in the economic situation and the evolution of inflation, given that although the commercial data for the first five months of the year are cumulatively above 2019," they added.