REPORT FROM ITALY—The new financial arrangements through Banco del Turismo, Italy’s first bank for tourism-related businesses, will help address hoteliers’ cash flow issues.
“Hotels need liquidity support”, said Walter Pecoraro, G&W Hotels Chairman and president of Federalberghi’s Lazio branch [http://www.federalberghi.it/]. “(But) we have always had cash-flow problems, (for instance) because of the seasonality. With the (new) agreement we gained the (required) flexibility”.
“Most of the guests pay at the check-out, but if (the hotel) has business customers there can be a very strong payment deferment, even of 120 days”, said Giovanna Manzi, CEO Best Western Italia and president of the hospitality work group at the Banca del Turismo’s organizing committee. “Maybe, a leisure hotel doesn’t have problems, but a business hotel, like in cities like Milan or Bologna, can have a quite interesting deferred collection of payments. (This is true) for hotels working with tour operators, too”.
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The credit crunch fuels a vicious circle: Businesses cannot rely on banks’ help as before; less credit means worse budgets; worse budgets mean worse ratings; worse ratings mean less credit.
Manzi explained that a single bad season is enough to change a credit rating.
“There are (some) hotel suppliers that require cash on delivery (to some hotels), because the banks didn’t provide them the courtesy overdrafts. So, now those hotels have to face some expenditures earlier than before”, she said.
The bank’s aim
The economic crisis exacerbated an already dark scenario. According to the hoteliers, Italian banks are not inclined to give financial support without real-estate guarantees because they do not have the expertise required to evaluate the hotels’ performances.
The aim of the tourism bank, as well as of the hospitality division, is helping the financial world analyze hotel performance properly, stressing the hotel management as an asset in the same way as the real-estate ownership.
Hoteliers believe the cash-flow problems—enflamed by stricter rules and regulations—can be addressed only by working on new guarantee solutions.
“The banks can grant an overdraft based on the amount of the credit cards payments of the previous years, based on the point of sale transactions, or on the reservations. This is an industrial notion: Banks advance against factories’ orders. Our orders are the reservations. So, we find an agreement with Intesa (using reservations as orders) to help cash flows in these hard times”, Pecoraro said.
Payment and collection
The management of payments and collections is another crucial question that requires the cooperation of all the tourist actors. “Many steps forward could be taken on payments and (collections) among the operators—among hotels, travel agencies, tour operators”, said Davide Rosi, president of the tourism work group of the Banca del Turismo’s organizing committee.
“(At the beginning), (the bank of tourism) will focus (mainly) on management of payments and (collections) because there is a strong demand for a rationalization of (these systems) in the tourist sector, with guarantees for the consumers, guarantees for the tour operators; (but also) for the hotels to be paid by travel agencies or for the travel agencies to have the (paid) services”, he said.
“(Strategies) we are thinking about are the ones that are raising more debate in the financial world: The associations of payment institutions. In theory, one of the best technical solutions is to use private circuits. We are working very much on a guaranteed circuit, for collects and payments, in which all the actors who want to be guaranteed can enter”, Davide Rosi said.
A credit card issued by a common circuit also can be a way to save transactions’ direct and indirect costs.
“All the actors that are members of a network can (benefit) from a common credit card. Guess if a hotel is part of the same circuit of a tour operator. If they are member of the same circuit, this can lower the times of compensation between them”, Manzi said.
Manzi pointed out what she considers “maybe the more important and impacting aspect for the hotelier” with regard payments and collections—PCI compliance.
“Most transactions are made by credit cards, with guarantee or also at the check-out. This implies a burden for the adjustments (required) to comply with the PCI rules. Here, the bank of tourism can help—providing help with its knowledge and solutions—because this bank is focused on a specific sector and (it has) a deep knowledge of each turn and meander of it. (The tourism bank) could also make at (the customers) disposal solutions the (traditional) banks are not offering at the moment. (Nowadays, it can happen) that you go to a bank and the executive doesn’t know what (PCI compliance) is. We began knowing it before them and we talked about it since two years. It is clear that they (the banks) have a very heavy knowledge gap that we could fill more easily”, she said.
Long-term investments
“(The aim of these agreements) also is to find financing methods for renovations and for adjustments due to (new) legislation—that in our sector is regretfully in a continuing evolution. For the renovations, in this so difficult moment just to find banks … We came from two years of closed taps”, Pecoraro said.
But, according to Pecoraro, “the banking system is still tied to the chattel mortgage. It can’t give a real value to the hotel management as an asset and this penalizes the hotel management”, he said. This is why real-estate ownership is still a goal many hoteliers hope to achieve sooner or later.
“Hotels suffer for the real-estate bubble of the last seven, eight years; prices rose in an irresponsible way. Hoteliers who didn’t have the possibility of buying the buildings and who are close to contract expiration are now in difficulties. Renewing contracts, the owners apply current values that remained very high regardless of the crisis. This indicates a dramatic risk of shutdown for many hotels, in the cases in which the hoteliers can’t afford the new requested rent rate”, he said.
The Banca Intesa’s agreement provides for long-term investments, such as the buying the real estate.
“With the Banca Intesa we gained the possibility of (mortgage) loans of 30 years to finance the real estate purchasing. Only by extending the duration of the loan it is possible to have affordable installments”, Pecoraro said.
Such a demanding objective—the real-estate purchase— also can have considerable impacts on hotels budget to turn into a handicap if the banks do not have specific competences.
“The investment (for real estate purchasing) in Italy is remarkable, and this is what misrepresents the (hotel) balance’s data. If I need a lot of money to buy a property, it is clear that the balance will be not very nice because of amortization or loans. If there isn’t knowledge (of the hotel industry), when a hotelier wants to do a capital improvement (the banks could create problems)”, Best Western’s Manzi said.
When a chain wants to purchase the real estate, the investment is very high and the bank plans for 25 years to 30 years, she said. “Today, it is very hard to bid on such long durations, while in other countries the hypothesis of investments is 7 to 10 years and we can guess what will happen”.
“The real estate costs and the fact that the hotel sector is risky, in addition to the fact that Italy doesn’t offer an environment focusing on tourism and infrastructures, then I go in France, in Austria because there is a system that lowers the risk of the (hotel business)”, Manzi said.