Trouble in paradise: Spanish holiday island reels from coronavirus

By Sonya Dowsett and Isla Binnie

MADRID (Reuters) - On the tourism-dependent Spanish island of Mallorca, a total shutdown of hotels due to the coronavirus outbreak has destroyed livelihoods across the sector, from reception staff to farmers who provide food for restaurants.

The Balearic Islands, of which Mallorca is the largest, are one of the biggest attractions in Spain, which welcomed nearly 84 million visitors in 2019 to maintain its position as the world's second most popular holiday destination.

So they face a particularly acute threat from the spending squeeze and restrictions on movement during the crisis, which has hit Spain hardest in Europe after Italy.

Desperate to reopen, even if in a reduced capacity, hotels are lobbying government to allow limited travel between Germany and Mallorca - both of which have relatively low coronavirus incidence rates, says Xisco Porcel, vice-president of the island's Peguera and Cala Fornells Hotel Association.

Many people who rely on the tourism industry in the archipelago work on a "six months on, six months off" model. The huge wave of temporary layoffs in hotels and restaurants is taking time to process, leaving many without cash.

"I have not received one euro in the past month and a half," said Elias Suliar Nicolau, a 34-year-old reception manager at a hotel in north-west Mallorca who has had to pay rent out of savings as he waits for payments from a state furlough scheme.

He fills his days reading, including French novelist Albert Camus’s "The Plague". "What is not clear at the moment is when we are going to get any normality back," he added by telephone.

Spain's reputation as a safe holiday destination developed over more than four decades has helped boost tourism's contribution to the economy to over 12% - income now at risk.

"The impact of Covid-19 will be like a war," said Gabriel Escarrer, chief executive of the Melia hotel chain which runs more than 350 hotels globally, 23 of them on Mallorca.

"Not even the worst financial crises or September 11 left us with visibility as low as it is now," he said during a webcast roundtable organised by Spanish consultancy Thinking Heads.

BIG LOANS

The coronavirus outbreak has hit Spain after bumper years of investment in its hotel sector, especially in Balearic Island hot spots like Mallorca and Ibiza.

Investment in the Spanish hotel sector has increased three-fold over the past ten years, according to real estate services firm Colliers International, much of it from foreign funds who bought family-owned hotels and spent millions doing them up.

In 2018 - a record year - investors spent nearly 5 billion euros ($5.4 billion) on deals in the hotel sector in Spain, according to Colliers. In turn, small hotels borrowed heavily to refurbish in order to attract higher-spending visitors.

"Most of the hotels in Mallorca have made big investments in recent years to go upscale. We all have big loans," said Porcel, who also manages a four-star beach front hotel in Peguera, known as "Little Germany" for its popularity with German families.

With most expecting this summer to be a write-off, some are fearing vicious price wars further ahead to bring tourists back.

"I put myself in the shoes of an independent hotelier who has one hotel ... they will have to bend over backwards to capture as much demand as possible at whatever cost," said Miguel Vazquez, hotels specialist at Colliers.

(Reporting by Sonya Dowsett and Isla Binnie; Editing by Andrei Khalip and Andrew Cawthorne)