MADRID—Spain’s iconic, state-owned Paradores chain of hotels, many of which are housed in historic buildings, is cutting more than 600 jobs and considering whether to close some properties during the low season in a bid to return to financial health, the government announced.
“The company is studying the temporary closing of seven Paradores because we wish to avoid closing them for good,” Industry, Energy and Tourism Minister José Manuel Soria said.
“The government wants Paradores to continue as a flagship business, a reference point and a tourist sector attraction, but to do this we have to carry out a process of restructuring,” he said.
Paradores, with 94 properties around the country, is struggling amid Spain’s economic crisis, which has seen average hotel occupancy fall from 70% in 2007 to 52% so far this year, according to a press release. In the same release, management described the chain’s financial situation as “unsustainable.”
“Unless measures are taken, accumulated losses in 2013 could reach €139 million ($179 million),” the chain warned, adding that it had managed to reduce operating costs by €20 million ($26 million) this year.
However, the chain said, “These measures, although effective and appropriate, have not been enough to reduce the necessary costs, which make a restructuring inevitable,” the chain said.
This includes shedding 644 jobs in the hotels and at the central headquarters in Madrid, or 14% of the some 4,400 staff positions.
Holiday strikes
Paradores management is meeting with union officials representing the chain’s employees to negotiate severance packages, but the chain is facing a fight.
“We’re going to defend these jobs with everything we have,” Enrique Sanchez, a Paradores employee and union representative said, claiming management planned the seven closings to be permanent and that 27 more properties would be shut for at least five months of the year.
Workers staged 24-hour strikes on 7 and 8 December, coinciding with a four-day weekend in Spain. The demonstration cost the chain €2 million ($2.6 million), or half the expected revenue, management said. The union plans further walkouts on 31 December and 1 January when the hotels are popular venues for Spaniards ringing in the New Year.
Since the first Paradores hotel opened in 1928 in the Gredos Mountains west of Madrid, the chain has since transformed dozens of castles, convents and palaces into 4- and 5-star hotels featuring luxury accommodations and upscale regional cuisine.
“The Paradores (hotels) have become destinations in themselves because they offer quality, high levels of service and the chance to spend the night in a 12th-century castle,” said Bruno Halle, partner at the Barcelona-based Magma TRI Hospitality Consulting.
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Bruno Halle Magma TRI Hospitality Consulting |
“There are people who spend their whole vacation in Spain just going from (hotel) to (hotel),” he said.
The proposed layoffs would be the first mass reduction in force in the chain’s history and the first in the Spanish hotel sector, which is struggling from a fall in domestic business triggered by the country’s economic woes.
But one industry source said similar steps were not necessarily in the cards at other chains.
Staff adjustments
“The economic crisis so far is not having that large of an impact on employee numbers,” said Ramon Estalella, the secretary general of the Spanish Confederation of Hotels and Tourist Accommodations, noting there are between 200,000 and 250,000 people employed in the sector, depending on the season.
“There have been staff adjustments in chains operating in Spain and among individual hotels, but nothing like what is happening with Paradores.
“Hotels can now survive with smaller staffs because of things like technology and an increase in outsourcing tasks such as security, laundry and housecleaning,” he said. “In fact, the number of hospitality employees has risen by 10% since 2007, mostly because there are more hotels.”
However, TRI’s Halle disagreed, saying that in these economic times other Spanish chains also could carry out large-scale sackings. At the same time, he identified two key problems Paradores management has to address.
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Ramon Estalella Spanish Confederation of Hotels and Tourist Accomodations |
“One, staffing costs are high as many of the employees have worked there for a long time so they enjoy high salaries and benefits. And two, most Paradores (hotels) are in very old structures so maintenance costs can be very high.
“In order to get out of this predicament, management has to improve efficiency regarding the daily running of the properties and be aggressive in searching for other lines of business such as what the chain is doing in the Middle East.”
Two years ago, Paradores signed agreements with the governments of Saudi Arabia and Oman to help set up similar chains by choosing historic buildings with hotel potential; advising on restoration; cooperating on a business model; and assisting in training programs for managers and senior employees.
Morocco, Turkey, Mexico, Argentina and other countries also have shown interest in the program.
Privatization?
Privatizing the chain has been downplayed for several years by industry experts, although union officials claim the layoffs are the first step in a process to make the business more attractive to potential buyers.
But the government denies this, with experts arguing it would be difficult to sell the entire chain in one deal.
“Privatization would make Paradores more efficient, but putting the chain fully into private hands would be impossible as the properties are actually owned by town halls, private individuals and even the church,” Estalella said.
An alternative would be to hire hotel operators to assume management duties or establish franchise arrangements, Halle suggested, citing the example in neighboring Portugal where Pestana Hotels & Resorts took over operation from the state of the historic Pousadas chain.