Opinion

Welcome to the hotel apocalypse

Op-ed views and opinions expressed are solely those of the author.

Remember that moment on family vacation when dad opened the door for the first time to your hotel room? The wonders of what could be in there! Check out the bouncy beds! Does the TV have cable? That view is a thousand miles! “I get the bed by the window!” “Let’s check out the pool!”

That feeling, and that world, may be disappearing for good.

An industry friend (who is currently polishing his resume) remarked that if the impact of COVID-19 on the hotel industry was a natural disaster it would compare to a couple of Cat-5 hurricanes hitting the entire East and Gulf coasts, F5 tornadoes popping up over cities and towns throughout middle America, and the San Andreas Fault and Cascadia Subduction Zone simultaneously redrawing the map of the West. Less than a month after the American Hotel & Lodging Association (AHLA) published a dire report warning that the hotel industry faced a historic wave of foreclosures, it followed up with the sobering STATE OF THE HOTEL INDUSTRY ANALYSIS: COVID-19 SIX MONTHS LATER

In short: The Hotel Industry Remains On Brink of Collapse.

Key findings of the report:

Four out of 10 hotel employees are still not working.

  • Almost two-thirds (65 percent) of hotels remain at or below 50 percent occupancy, which is below the threshold at which most hotels can break even and pay debt.
  • Consumer travel remains at an all-time low, with only 33 percent of Americans reporting they have traveled overnight for leisure or vacation since March and just 38 percent saying they are likely to travel by the end of the year.
  • Urban hotels are suffering the most and facing collapse with cripplingly low occupancies of 38 percent, significantly below the national average.
  • COVID-19 has left hotels in major cities across the country struggling to stay in business, resulting in massive job loss and dramatically reducing state and local tax revenue for 2020 and beyond.

COVID-19 has impacted the industry in two primary ways.

  1. Many hotels rely on groups, meetings, and business travelers, which are currently nonexistent and unlikely to return until at least deep into 2023. The flagships depend on large conventions and smaller seminars where banquet and food revenue can be substantial. In many cases bedrooms are sold at a discount as conventions can make a hotel’s quarterly profits.
  • Businesses are still primarily locked down with employees working from home by video conferencing, email, and phone. What was expected to take a decade for businesses to migrate to a more distance-based work environment has been compressed into a few months.
  • Business models are adapting and are now questioning the expense and inconvenience of traveling just to shake a hand when almost everyone is comfortable online. Business travel for conventions and in-person meetings will be preferred by some, but the numbers may never get back to before COVID.
  1. The hotel industry was already under increasing pressure by the fledgling private room and home online rental market which, for many people who have a choice, has been a financial no-brainer. People are coming back to the rental market faster than hotels.
  • Short-term rentals could make social distancing more feasible, with multiple bedroom-units and whole homes to rent.
  • More homes are in rural and/or remote vacation markets, a boon for travelers seeking to leave urban areas amid COVID-19 cases and concern over urban violence and safety.
  • Most have full amenities, including kitchens, private yards, and much more space making longer-term stays more convenient.

America’s hotels are an economic powerhouse, playing a major role in commerce and revenue to employees, suppliers, and cities and states across the country. As per the AHLA, before the name COVID-19 was ever uttered, 8.3 million people were employed by the hotel industry– that represents one of every 25 American jobs. Hotels contribute$660 billion annually to the U.S. GDP and support nearly $395 billion in wages, salaries, and other compensation. Moreover, for every $100 hotel guests spend on lodging, another $222 is spent at the destination—totaling $278 billion per year spent on transportation, dining, shopping, etc. at U.S. businesses during stays.

Moreover, it’s easy to forget the massive number of small, non-flagship hotels and motels, often owned and operated by immigrant sole proprietors who have invested everything into their small business. Nearly 50 percent of U.S. hotels are owned by Americans with origins in South Asia, according to the Asian American Hotel Owners Association, with many other minority-based lodging groups representing small business owners.

Four thousand hotel industry leaders along with their partners in commercial real estate and construction have implored Congress to pass “The HOPE Act”, bipartisan legislation to immediately provide liquidity to the industry. The letter was sent to Congress last month, but observers are quick to note the political appetite for more massive bailouts may have to wait until after the contentious election.

As the hotel industry heads into its annual Fall slow season and with the hoped-for HOPE Act recovery a ways off, there are few signs that a rebound in travel demand will happen anytime. Many hotels won’t survive, meaning that hotel where you once vacationed may soon not be there for you and your kids.

 

David Sussman

David Sussman is Founder at Valcor, a business restructuring, turnaround, and capital
acquisition firm training consultants to assist local small and medium sized businesses.
David Sussman

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