Neil Bayliss
In this episode, what is the future of travel and tourism in light of Covid-19? What have been the main legal issues for the industry arising out of the crisis and what advice is there for hoteliers seeking to succeed? Hello, and welcome to the Mishcon Academy Digital Sessions podcast, I’m Neil Bayliss, a Partner in Mishcon de Reya and Head of our Travel Law Group. It gives me great pleasure to welcome Katherine Doggrell, the Editor in Chief for the EMEA region at Questex Hospitality Group. Katherine is a leading commentator on travel and hotels and we’ve met at various travel seminars over the years. Today, we’re discussing if this is the dawn of a new age for travel and tourism or just a temporary crisis. Our podcast today is being recorded over the internet from home. I’m here in Hertfordshire and Katherine is in the delightful Paris. Katherine, hi.
Katherine Doggrell
Thank you, Neil. I was just having deep thoughts about whether in fact this was the dawn of a new age or just a temporary crisis.
Neil Bayliss
Big question.
Katherine Doggrell
It is. Can I answer it with one word? It depends I think if you think whether we can have changes, permanent changes to travel and changes to behaviour based on a four month shift or whether this really is something that was maybe always on the way. We’ve seen lots of trends in transactions and in operations which are being accelerated as a result of this which were already happening. So, you can see that it may be a new dawn but maybe the sun has been rising for a very, very, very, very long time on this and now it’s kind of shot up as if it was at the equator. Some of the changes will stick I think and some of them won’t, but I think as far as you guys at Mishcon go, you’ve been involved very deeply in some of the insurance issues and I know lots of hotels are desperate to see those stick but how are they coming along?
Neil Bayliss
Yep, well, we had the big test case in the High Court a couple of weeks ago. This was the FCA bringing an action against a number of insurers and examining the various, wonderful wordings they have in their insurance contracts and asking the Judge for his view on those. We’re waiting for the judgement on that. There are also a number of other class actions ongoing. One in particular for the hospitality industry which we’re representing and another in relation to claims against Hiscox Group which we’re also involved in. So, there is a battalion of lawyers lining up on both sides. There are probably billions at stake. It’s a big matter and rest assured whoever wins round one will be heading off to the Court of Appeal, Supreme Court in short order. So, we’re going to have lots more fun and games in Court before we know the answer but it is a critical issue for this industry and indeed many others because the claims effectively will either keep these businesses afloat or put them in an incredibly difficult position. So, it’s a really important case to see the outcome of.
Katherine Doggrell
We’ve seen some variance in the response of the Governments in the EU and the UK Government. Do you think the UK Government could have done anything… well, it could have done things differently but do you think it should have done things differently?
Neil Bayliss
This is a really fascinating area as you say. There have been hundreds of millions, if not billions of pounds of state aid provided by a number of different member states both to airlines and to tour operators to basically keep them afloat. Meanwhile, the UK Government has taken a far more robust position or been seeing the likes of ABTA lobbying hard to get the Government to put measures in place and it’s fell on stony ground. So, basically the Government has said, “We’re putting consumers first. We want consumers to get their refunds. We’re not going to make life easy for tour operators and we’re not going to bail out the airlines. Effectively it’s sink or swim archaic conditions will apply.” It’s not immediately clear why that is but I guess it boils down to politics and the fact that it’s not seen as the top of the list in terms of where state funding should be going which is very unfortunate for the industry, given the way that other member states have reacted but it is what it is and it makes life even more trying for the UK travel industry.
Katherine Doggrell
Do you think that we’ll see a shift in the regulatory framework going forward or is it, assuming there’s any travel companies left at the end of it?
Neil Bayliss
Indeed. Who is there to regulate? There are obviously quite a lot of questions being asked. We’ve got Brexit coming round the corner. That will allow the UK to go its own way if it wishes to in relation to the regulation of the back of travel industry and we’ll see what it chooses to do with that. I haven’t read or seen anything to suggest that there are radical changes afoot, but there obviously are concerns as to how the whole system is funded and basically Governments will not want to see consumers being stranded overseas if airlines go bust or travel companies go bust so, it is very important that the system is robust and gives people the protection they need. So, I think this is the ultimate stress-test for the industry. There will inevitably be a review of how it’s panned out. By and large, the dust is beginning to settle. Obviously, there was a lot of pressure from business to try and offer vouchers etcetera instead of giving refunds. Those efforts I think have sort of come to an end now and the industry has accepted that refunds are the order of the day, if that’s what people want, that’s what they’re legally entitled to receive and so to that extent, the system is working. I don’t see a radical shift going forward you know, if it actually does what it says on the tin, which is that people do get a refund if they don’t get their holiday or if the company concerned goes bust. I just read a survey this morning suggesting that this is the number one issue for UK travel makers you know, more than 50% are concerned in relation to next years’ holiday. Will the company they’re booking with go bust? And it’s essential there is a robust scheme in place to protect them. It possibly suggests that it’s the larger companies which will do better because people trust large companies perhaps not to go into financial difficulties as much as the smaller companies. So, we’ll see how that pans out. But even those companies obviously are struggling. We’ll have to see. As I say, I haven’t sort of seen the signs of people saying, “We should just throw the existing regulatory framework in the bin and start again.” I think by and large it’s a question of making what’s there work.
Katherine Doggrell
Yes, I guess if you’re booking your holiday and obviously other travel operators are available but I would be inclined to maybe go with a German state-backed travel operator who may have just received almost €2 million.
Neil Bayliss
It certainly helps doesn’t it?
Katherine Doggrell
They seem well-capitalised don’t they? Thomas Cook don’t do so very well, it seems. So, you talked a bit about who might be the winners and losers, in this case German state-backed platforms likely winners and who do you think is going to fall by the wayside here?
Neil Bayliss
Well, in terms of winners I think the staycation is obviously on the up isn’t it? We saw that the Caravan Motorhome Club is gaining members at the rate of sort of 1000 a week. The caravan sales no doubt booming. Campsite owners are saying all their sites are fully booked for the season. That will carry on. That will be potentially exaggerated by the effects of Brexit or finding travel overseas will become more complicated with visas and insurance etcetera so, there will be more and more people perhaps wanting to take their holidays locally. So, the domestic industry should, should benefit from this. Clearly there will be fallout in relation to companies mainly doing their business in areas where there is still a serious incidence of Covid-19. I mean the countries particular say, South America which are in dire straits are not going to be top of anyone’s list I would suggest for the holidays anytime soon. So, the operators specialising in those sort of areas will inevitably feel the pain for some time, I fear.
Katherine Doggrell
There’s been lots of sabra-rattling this week from the likes of Heathrow Airport who have been grumping that they’re not allowed to test people as they come in. Some of the German airports, airports all over Europe have introduced a testing regime for people from different countries. In France, if you come over from the US you need to be tested and this means that they manage to avoid significant quarantining. Quarantine obviously is an extremely popular political as far as we can tell, sledgehammer at the moment in the UK. What do you think we need to do to change this regime? Because at the moment business travel can’t really kick in until you can release your business folk around Europe without them getting sick or without them getting locked up for two weeks afterwards.
Neil Bayliss
I think the truth is that the whole test and trace regime has been a bit of a disaster.
Katherine Doggrell
No.
Neil Bayliss
No, she said. Shockingly… News just in.
Katherine Doggrell
All revelations here.
Neil Bayliss
Exactly, you heard it first here. So, this is just the next sort of chapter in that sad story you know, we know that places like Germany and Korea got their act together at an early stage and this has enabled them to basically get the pandemic under control and get the numbers right down. We have singularly failed to do that and the knee-jerk response of imposing quarantines every time we think the risk may be going up in a particular country is a complete disaster for business and leisure travel because it just removes certainty, increases anxiety as to the possibility of a quarantine and therefore it’s simply not an option to take the risk of travelling almost anywhere at the moment. So, it’s… to the extent this policy remains in place, it’s a real roadblock I think to the growth certainly of business travel and now that people want to get their children back to school, the possibility of going away and not being able to send the children to school is a real, it’s just a no-go, it’s a non-option so, we had the sight of half a million people running back from France last week, which was great news for Eurotunnel and others who were able to provide travel at somewhat less discounted prices than might have otherwise been the case and you know, talk about not having a relaxing end to your holiday when you’re sitting in traffic jams for hours. It’s not really a satisfactory solution and I fully agree that more needs to be done to put those measures in place, which are proven to work in other countries. It’s a bit of a mystery to me why we have failed to follow the lead of countries that have succeeded where we plainly haven’t.
Katherine Doggrell
I was watching little Matt Hancock, to give him his formal name on the TV this morning and he of course was asked why it was with the Chief Executive of Heathrow in his ear saying “We need to open, we need to open, why can’t we just test people?” And he was, “Ooh, no, no, no, it’s very complicated. It’s very complicated it turns out.” So, that’s the reason if anyone was wondering why they’re not allowed to travel, it’s because it’s complicated, very complicated.
Neil Bayliss
Good to know. That’s good to know. Yep. It’s complicated.
Katherine Doggrell
So, with that in mind and all things being equal in terms of I’m in France, you’re in the UK. I can’t come to the UK for any reason at all possibly for an eye test. Where do you think we’re heading For the UK? Do you think we’re going to see more of a split in performance in the hotel sector between mainland Europe and the United Kingdom? Or do you think we’ll catch up? How long do you think it will take to recover and will we be in a two-tier system?
Neil Bayliss
I think if I knew the answer to that I’d potentially be A, a wealthy man and B, probably sort of on Radio 4 telling the world what the answer was.
Katherine Doggrell
Ooh have a pontificate.
Neil Bayliss
I think that clearly we are, we are in catch-up mode. We are going to be behind the curve in terms of the rest of Europe. I mean, the picture isn’t even across Europe. Though clearly, some countries have got very different policies to others. You’ve got Sweden that’s the outlier that basically took a slightly Trump-esque approach in saying, “We’re just going to carry on.” Other countries which were far more cautious and, as I say, improved very strict test and trace regimes but I mean, you’ve got domestic demand which will be there. We have got the events and conferencing green light for 1October. So, there will be hotels in the UK which will be able to run events so that is a significant source of revenue for many of them. I think there’ll be a pick-up in domestic business activity. Obviously as I mentioned earlier the staycations are up. There are sort of budget brands obviously re-opening and promoting their offering. So, I think it’s by no means a disaster, I think the industry will certainly survive but I think we’ll be just a few weeks, few months behind the rest of Europe. Obviously that’s all predicated by the question of whether we get a second wave or not. If the policy of everyone can go back to school just sets off thousands of new daily cases there will be just reset the clock back to April and off we go again and before we know it we’re into sort of year two of this mess. But on a more positive note would say that doesn’t happen and then as we get into next year people starting to do their budgets, starting to plan for what they’re going to be spending their money on and that will include as I say, business and leisure expenditure on hotel sector. I know that you have a particular interest, expertise in the hotels and you’ve you know, written widely on the topic but what’s your angle on this? Do you have a positive outlook for certainly, the UK hotel sector given that’s where most of our listeners are probably based?
Katherine Doggrell
If you’re in private equity and you’re sitting on the edge waiting for massive, massive bargains, I’ve spoken to a few people and they’ve said, “Oh, I’m not buying now. The prices haven’t discounted enough. I’m really waiting for a second wave” so, they’re enjoying that. Consolidation for me, as someone who covers the sector, there’s bound to be plenty of news. We’re all enjoying the Travelodge debacle at the moment.
Neil Bayliss
Yep.
Katherine Doggrell
Which has been fascinating, certainly from a legal standpoint, contractually with all the CVAs and…
Neil Bayliss
Well, as you say, I think a lot of this has accelerated what has been bubbling under. I think that’s true in terms of obviously working practices generally, the fact that almost everyone’s going to be saying, “I can work from home at least some of the time now” and some people who are working from home all the time instead of commuting into the office and as you say, for hotels, the whole sort of financial risk/reward structure being looked at and landlords no longer having the sort of complete dominance in negotiation with tenants and there having to be some element of revenue share, I think that’s… there’s something which obviously people will talk about but now, as you said earlier, that’s actually going to really start kicking in because the balance of power has changed. Do you agree or…?
Katherine Doggrell
I’m not sure how permanent the shift has been. I do think there are issues with leases, they used to be a nice quiet way to earn loads and loads of money for your pension and now it turns out that if you close a hotel it’s not so much fun after all. So, there may need to be shifts to that, I think that’s more than likely. I think one of the interesting areas that we’ll see with people working from home more, which obviously doesn’t work for frontline staff in the hotel sector but for working from home more whether the business traveller will be somebody who’s travelling from maybe further away to stay near their office for the two days a week they’re going into the office, rather than just people who are coming to events or are coming to meet clients. So, I think we’ll see some movement on how the business traveller is sliced and diced, it could be an interesting shift.
Neil Bayliss
Do you see some closures? Do you think the market will contract?
Katherine Doggrell
I think that, certainly if you were to look at Travelodge and I think you can extrapolate out quite a long way in the UK by looking at that, there will be inevitably some hotels which exit the market entirely on account of they’re just being too terrible to remain as hotels without significant investment.
Neil Bayliss
And one of the things that has been observed, obviously with the state of the US in relation to Covid-19, is the dramatic fall-off in terms of US-inbound tourists who were a major part, certainly of the sort of London high-end hotel market along with some of the Asian travellers. So, have you seen a particular consequence yet in terms of the sort of four/five star London luxury end or are they holding their own fine notwithstanding the lack of our American friends?
Katherine Doggrell
No, it’s an absolute apocalypse. You get much, much better, you get 80-plus percent occupancy in Bournemouth at the moment and it’s right down in the terrifying lower figures for London. But I think what we’ve seen in recent years in the transactions market in London is that people will pay hugely over the odds just to own a luxury hotel in London and the people who are buying these are big family offices, people who are not worried about a dip in performance for one year or for five years or possibly even for longer because they’re going to hold these massive gold hotels…
Neil Bayliss
Right a long-term…
Katherine Doggrell
…forever.
Neil Bayliss
Yeah.
Katherine Doggrell
So…
Neil Bayliss
Yeah. It’s great to say, “I own the Ritz” or…
Katherine Doggrell
Exactly, who doesn’t want to, you know…
Neil Bayliss
Yeah.
Katherine Doggrell
Just because there’s no-one staying there…
Neil Bayliss
… pop in…
Katherine Doggrell
… shouldn’t hold you back.
Neil Bayliss
Have your own room, it’s nice. Yep.
Katherine Doggrell
Have everyone over.
Neil Bayliss
If you’ve got a spare billion then it’s…
Katherine Doggrell
Exactly you are saving on cleaning costs. so, you know. All good. Keep it shut, I say.
Neil Bayliss
But as you say, these places won’t be thrumming with life for a little while.
Katherine Doggrell
No, no I fear. Last time I was in central London…
Neil Bayliss
… naturally cautious.
Katherine Doggrell
… there was… I think I was the only person there so.
Neil Bayliss
You were made most welcome by numerous hotels and restaurants, I’m sure, yeah “Please come to us. Spend your money.”
Katherine Doggrell
Yes. But before we had all this there were other things happening I believe in the hotel industry. I mean other aspects, we’re all getting very concerned about Greta and how terrible hotels were on that front. Do you think that hotels will be able to look back or concentrate again on their environmental targets, of which they all had many ahead of this?
Neil Bayliss
Yes, yes. I think well, that’s the other sort of big theme for the future isn’t it? I mean Covid hopefully will be a short-term issue. Hopefully, next year we’ll be over the worst and into fresh water as it were. But the whole sort of…
Katherine Doggrell
Well if you listen to Chris Nassetta at Hilton, he thinks we’re going to have a vaccine next month. So…
Neil Bayliss
Oh, well that’s great. All sorted there.
Katherine Doggrell
Yeah. It’s done isn’t it?
Neil Bayliss
I’m going to queue up now.
Katherine Doggrell
Brilliant.
Neil Bayliss
Yes, well I think, not sure, not sure I’d put my money there so I’d be… an optimist I think would say, you know, next spring, hopefully, things will be clearing up but if it comes before then that’s fantastic. I know the Government is certainly spending lots of our money on vaccines which hopefully will work or maybe not but we’ll find out won’t we? But yeah, the whole ESG approach to business and the environmental aspects of the travel industry generally probably one of the biggest issues going forward and the increasing awareness of consumers that there is an impact in terms of their behaviours and the need to think about the consequences of travelling to particular locations and how those destinations are dealing with sort of large numbers of tourists and the inevitable impact they have on the environment, I think it is increasingly coming to the fore. It was never really spoken about, it was a bit of a ‘We Just Don’t Go There’ type subject but I don’t think that’s the case anymore and I actually think that companies will increasingly see the benefit of having a really joined-up, coherent and meaningful policy on those issues and that’s for hotels, tour operators, destinations etcetera. It’s been a bit of a high-end luxury thing you know, go and have your super eco-holiday and pay twice as much to go and live somewhere where everything’s recycled and there’s no impact whatsoever and it’s all wonderful and that’s sort of not been at all the sort of mainstream approach where it’s just go and have fun and don’t really care, it’s only for a week or two so it doesn’t really matter. But that is changing and that’s true of, as I say, airlines, tour operators, hotels. A lot of the state aid that has been given to the airline industry has come with the condition that the airlines introduce further measures to improve their environmental footprint, whether by upgrading their fleet or just considering their practice generally in terms of how much stuff they’re throwing away after every flight. So, there’s a lot of work I think genuinely kicking in now and I am excited by it, I think it’s a huge positive because the industry obviously is collectively, if you include all the travel, responsible for serious carbon footprint, serious amounts of pollution and waste but it can be put right. The techniques are there and if people think about it they can turn it round and you know, I am glad to see that there is now meaningful pressure to make those changes. So, that’s a positive and I think that’s a real sort of important trend to focus on for the travel industry going forward.
Katherine Doggrell
Yep. Have you limited your travel? Obviously, you’ve limited your travel because Dominic Cummings doesn’t want you to travel but have you actively changed the way that you travel?
Neil Bayliss
Well, certainly since March I’ve been working from home. Like many, many people I’m considering my future working practices. I haven’t done any overseas travel, I was going to have a nice couple of weeks in Turkey but that got cancelled so I had a very pleasant week in Yorkshire which was you know, sunny and lovely and just the same without the four hours flight. Obviously, like most people, I enjoy travel and exploring, I’m hoping that that does come back. I wouldn’t want to be sitting at home indefinitely. That’s the sort of over-riding good news story I guess for the industry is that almost the last thing that people do cut is their annual holiday, their travel. That’s so important for most people. I’m quite surprised that there were half a million people in France a week ago. That’s a lot of people. So, that shows…
Katherine Doggrell
Well, if you’ve been in France like I have you wouldn’t be surprised at all because everyone is here.
Neil Bayliss
All the Brits are here or there.
Katherine Doggrell
They’re all here.
Neil Bayliss
But that’s obviously just one country so I imagine there must be over a million Brits somewhere in the world on holiday, notwithstanding quarantines and all the hassle and the risks. So, we’re a nation that likes to travel, we enjoy our holidays and I don’t think… that won’t change so, the extent we can return to any form of normality we will and that’s, I guess, the positive for the industry. As you say, looking at it medium/long-term it’s still a great industry to be part of and if you’re selling the right product to people they will come and buy it.
Katherine Doggrell
Yes, we will see intriguing things come out of this for hotels, there’s no greater sector to cover, it’s full of innovation and fascinating people and hospitable places and wonderful things to see all the time and that’s not going to change. I do wonder whether we’ll see an end to casual travel where you just hop on an EasyJet and go to Barcelona for the weekend. But people do like Barcelona and much as I like Yorkshire and it is a wonderful place, I’ve spoken to an awful lot of people this year who feel that they have been robbed of their trip to the sun.
Neil Bayliss
The experience, yeah, yeah, well, I think there’ll be a flood of pent-up demand won’t there? A sort of rush of bookings for the right companies to benefit from once the coast is somewhat clear.
Katherine Doggrell
Yes, I think our favourite state-backed travel company said that they’d seen a huge uplift in 2021 summer bookings already.
Neil Bayliss
Yep. No, that’s good, that’s good. Well, thank you Katherine for joining me today on what I think was a really interesting discussion. We’ll see what the future holds. But in the next episode my colleagues Louis Flannery QC and Kate Clark will be talking about the future of remote courts and arbitral tribunals.
The Digital Sessions are a series of online events, videos and podcasts, all available at mishcon.com. And if you have any questions you’d like answered or suggestions of what you’d like us to cover, do let us know at digitalsessions@mishcon.com. Until next time, take care.
The Mishcon Academy Digital Sessions.
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