The impact of the Covid-19 pandemic on the hotel industry's economic performance: evidence from Portugal

This paper estimates the impact of the Covid-19 pandemic on the economic and financial performance of the Portuguese mainland hotel industry. For that purpose, we implement a novel empirical approach to gauge the impact of the pandemic during the 2020–2021 period in terms of the industry's aggregated operating revenues, net total assets, net total debt, generated cash flow, and financial slack. To that end, we derive and estimate a sustainable growth model to project the 2020 and 2021 ‘Covid-free’ aggregated financial statements of a representative Portuguese mainland hotel industry sample. The impact of the Covid pandemic is measured by the difference between the ‘Covid-free’ financial statements and the historical data drawn from the Orbis and Sabi databases. An MC simulation with bootstrapping indicates that the deviations of the deterministic from the stochastic estimates for major indicators vary between 0.5 and 5.5%. The deterministic operating cash flow estimate lies within plus or minus two standard deviations from the mean interval of the operating cash flow distribution. Based on this distribution, we estimate the downside risk, measured by cash flow at risk, at 1294 million euros. Overall findings shed some light on the economic and financial repercussions of extreme events such as the Covid-19 pandemic, providing us with a better understanding of how to design public policies and business strategies to recover from such an impact.