The average forecast of analysts continues to anticipate losses, but Gabriel Escarrer shows total confidence that Meliá will close 2022 with profits and with revenue per available room already at pre-Covid levels in the vacation segment, which the hotel company leads in the world.
Since June of last year, Meliá Hotels has achieved positive EBITDA (gross profit) and has avoided consuming cash each month, with the exception of December, marked by cancellations of reservations that caused the omicron variant of Covid, especially in Spain. Since those same dates, the CEO of the Majorcan hotel company confesses that “he is traveling with total normality, with all the precautions, but living with the virus.”
A coexistence that has required “93 PCR tests since March 2020”, and “not including antigens”, he snorts with dismay. The anecdote portrays well the reconstruction of the tourism sector, the hardest hit by the pandemic, in two ways: in its hardness and in that it is already unstoppable, especially for leaders like Meliá, with a presence in the most vacation destinations most important in the world, from Cuba to Bali. Escarrer admits the need to divest from “more mature” hotels, but once again finds opportunities for growth.
The recovery of pre-Covid income is not yet seen in 2022 or 2023…
It is true that we still lack a very representative percentage of the international client, but the behavior of the domestic markets, especially in Europe and Mexico/USA, has been spectacular. The Meliá vacation segment is going to recover very soon, and I mean throughout this year, the RevPar (revenue per available room) of 2019, while in the urban segment, which depends more on the international client and the congresses , conventions and fairs and companies and face-to-face work, it will take another year. So in 2023, the total RevPar will be at pre-Covid levels. 2021 started with a very bad first quarter, but the year developed as expected.
In this recovery, an objective was to take advantage to improve gross margins. UBS recently targeted 30% in 2023…
I would not dare to give a figure… especially at a time when there is inflationary pressure, although we are defending ourselves well. But I can speak of an improvement compared to 26% in 2019. The Covid has accelerated the digitization of the company, has favored an expansion that is reflected in the incorporation of 21 establishments and nearly 4,600 rooms, and we have increased sales at Meliá .com, the own channel, where before the pandemic we were at levels close to 38% of total sales and in the first 9 months of 2021 we were above 55%, which allows us to have a higher average rate and lower costs of intermediation. These factors: the digitization of the entire company with improvements in efficiency, the greater contribution and weight of Melia.com and the expansion are those that will favor the improvement of margins
Will Meliá reach net profit in 2022?
I am convincent that is yes.
The average forecast is still in losses…
Definitely, in my opinion, I think this year we will see net profit.
What is the evolution of the average rate?
We have been able to have a very significant increase in the average rate in 2019, thanks to the vacation segment. This is due to the fact that we have been able to better control our distribution, through our own Meliá.com channel, we have had the greatest percentage of customers in our loyalty program, which is a customer who tends to spend more, and we have reduced intermediation costs considerably. There has been a dammed up demand that this company has capitalized on better than others. Premium, high-end hotels, especially in the south of Spain, in Ibiza or in Mallorca, have been at the highest average rates in their history. The problem in this crisis is occupation.
“The ‘premium’ hotels in Ibiza or Mallorca have reached the highest average rates in their history”
What goal do you have for sales at ‘Meliá.com’ over the total?
We will improve the 38% of 2019, but we will not reach the current 55% in a more normalized environment and with a recovery of tour operations, of intermediation. We will be in figures close to 50% in a normalized environment, which will occur throughout this year or early next year.
How much does the margin improve sales in your own channel?
Intermediation in the sector costs close to 20%, and, furthermore, it is not only what it costs, but the own channel provides advantages to improve the average rate, to get to know the customer better…
The hotel sector suffers from the highest bank commissions on card payments, 0.75 euros on average for every 100 euros. Is work being done to reduce this cost?
Our position as a large group is an advantage due to volume, scale, synergies. In addition, 50% of the payments are made by the client online, and in this part the commission is lower. Our costs in this aspect are more similar to a department store or a supermarket than to the industry average.
Seeing the punishment on the stock market for the tourism sector, and the Ibex 35 in general… what personal message do you send to the investor?
The tourism sector has been the great detriment of Covid. But he caught us with our homework done, and we have taken the opportunity to devise tomorrow, which presents a much more digitized company, with much more efficiencies and synergies and with strong growth with one more management model… In the last six months having incorporated 21 establishments is something we used to do in a year. And all but one have been in management or franchise, which improves margins. This model should be around 50% of future ebitda.
“A capital increase or a convertible bond to reduce debt are ruled out”
On a personal basis, would you buy titles at the current 6.5 euros?
I bought titles below 3 euros, and I would continue buying because I think that 6.5 euros does not reflect the benefits of the company. We must bear in mind that we are well below the NAV (net asset value), which including debt would be close to 11.5/12 euros. Only taking this valuation into account, which is a refuge value and which also helps us to strengthen the balance sheet with the sale of assets, is there any way.
It is the 30th anniversary of the Ibex 35, how important is it for Meliá?
It has allowed us to have a base of highly prestigious institutional investors. In the roadshows that I am doing there have been many companies that if you did not have a strong weight in ESG [inversión socialmente responsable] and if you weren’t in the Ibex 35 they would directly rule you out.
Would the Escarrer family reduce its participation to gain liquidity and continue in the Ibex?
Reducing to stay in the Ibex makes no sense. Perhaps if there was a project that was hyper-strategic and that gave value to all shareholders. But right now going down just to be able to meet the Ibex 35 would not be a sensible decision.
How has the relationship with US investors evolved, which suffered a lot in the Trump era for Cuba…
We have recovered many of those North American investors under the Biden Administration. Cuba is one of the markets that has later been reactivated, also because its main market is Canada and it has been one of the most restrictive in the world. But now we are optimistic.
Looking for new markets?
We will enter new countries but with more than three hotels. The priority is to grow on vacation and where we are already established.
“The dividend will not return until the debt drops to 2019 ratios”
Meliá Hotels suspended the distribution of dividends in 2020 due to the impact of the Covid-19 pandemic. Although the hotel group expects to present a net profit in 2022, the recovery of shareholder remuneration will still have to wait. “We won’t see it this year or next year,” says Gabriel Escarrer, CEO of the chain. For the return of the dividend, Meliá is required to reduce the debt to the level of 2019.
“I know that we have increased our debt. We came from a spectacular situation, with an EBITDA (gross operating result) in 2019 of 492 million euros, with a net financial debt of 590 million. This debt has doubled due to the consumption of cash and the lack of income. But we no longer consume cash since June, perhaps a little in December due to omicron, but it is not very relevant,” Escarrer stresses. In this scenario, “the company has to work on its cash flow, on business recovery, on analyzing alternatives for debt reduction. And perhaps one is the sale of assets throughout this year. This is the roadmap that will allow us to be able to distribute dividends again”, emphasizes the executive. The adequate levels of indebtedness to recover the dividend must be “very close to those of 2019”.
“Today a capital increase or a convertible bond to reduce debt is totally ruled out,” he says. “If in the future we saw growth opportunities that would generate shareholder value and that were extremely strategic, maybe one of these ways could be considered, but for the moment they are off the agenda,” he adds. On the contrary, it does leave the door open to issuing a high yield bond to have a greater weight in the capital market. “Between 40 and 50% of debt until 2018 was always on the market. That diversification is good. We are analyzing it, but the conditions have to be met for it to be successful. There is nothing at the moment, but it is not ruled out “, assures Escarrer, who emphasizes that “the company has protected itself very well” against a possible rise in interest rates.
It will sell a portfolio of hotels in the Caribbean for about 200 million
Meliá Hotels International plans to undertake a new asset divestment in 2022 with the aim of continuing to reduce its debt. The group is in the process of selling a portfolio of vacation hotels located in the Caribbean, according to its executive vice president and CEO, Gabriel Escarrer. It is a similar operation to the sale in 2021 of six establishments owned by it and the participation in another two, all in Spain, to a vehicle owned by Bankinter and other family offices for 203.9 million euros. Meliá agreed to keep 7.5% of the purchasing company, Victoria Hotels & Resorts, and maintain the management of the hotels for 20 years.
“The company continues to contemplate the possibility of reducing debt through an asset sale that will not be in the first quarter, but perhaps during the second quarter,” says Escarrer. Meliá’s plan is to “maintain a stake in the equity (capital) of the company resulting from the sale of these hotels.” It will be, in any case, “a minority, around 20%”, although these details are not yet defined. Similarly, the chain would maintain “a long-term management contract of 20 years.” The amount of this operation “could be similar” to the one carried out with Bankinter last year.
Meliá currently owns 37 hotels, of which 16, with 6,400/6,500 rooms, are located in America, with a prominent position in Mexico and the Dominican Republic.
The chain will abound with this sale in its strategy focused on asset light, with a growing weight in its portfolio of hotels under management or for rent. Therefore, it does not include hotel acquisitions or operations that involve cash outflows. It does open the door to corporate operations, although it has nothing on the radar: “The family (Escarrer) has no problem in the future considering lowering its participation, as long as there was a corporate project that was hyper-strategic and that gave value to all shareholders”.
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