European Central Bank publishes working paper finding 43 percent revenue drop for Portuguese hotels directly hit by 2017 wildfires

The European Central Bank has published a Working Paper examining how the 2017 wildfires in Portugal affected hotel firms’ cashflows and financing decisions, finding large effects on both directly damaged businesses and nearby firms that were not physically hit. Using establishment-level hotel data for 2015 to 2019 combined with geospatial wildfire and land-use information, the paper estimates that hotels with direct damage recorded an average 43 percent revenue drop in 2018, while indirectly affected hotels with a high share of burned area within a 1 km radius saw revenues fall by about 24 percent. The paper notes that the findings are those of the authors and do not necessarily reflect the views of the ECB. The analysis finds that these shocks led to different financial responses depending on exposure. Directly affected hotels increased their use of long-term bank debt, reinvested in tangible fixed assets and raised cash reserves, while indirectly affected hotels reduced tangible investment and cash holdings and only marginally increased short-term debt. Cashflow declines were partly cushioned for directly affected firms by cost reductions and government support measures, but indirectly affected firms still faced weaker cashflows as revenues fell and operating costs rose. The paper also finds stronger evidence for landscape destruction as the main indirect transmission channel than for damage to nearby tourist attractions, underscoring that wildfire losses can extend beyond firms suffering physical damage.