Before terms like “social distancing” and “shelter at home” had entered the popular vocabulary, the American Hotel & Lodging Association posted a preview on its website of what the U.S. lodging industry could expect businesswise in 2020. Revenue per available room, or RevPAR, the key gauge of financial performance in the hotel business, had risen 2.2% in January, suggesting moderate growth for the year. After all, more than 60% of consumers were planning to take a vacation within the first six months of the year, according to the association.
But global travel was already being tempered by a worrisome flu-like epidemic in China. The outlook was far from robust: U.S. innkeepers should expect nothing better than flat RevPAR and even a slight (0.3%) decline in occupancies for the new year, the February forecast advised.
Within weeks, lodging-industry officials were meeting with President Trump to plead for a lifeline. “We expect that 70% of hourly hotel employees are no longer working,” association CEO Chip Rogers said in a statement issued in response to Congress’ first COVID-19 aid package. “Additionally, we expect half of all U.S. hotels will cease operations by the end of March.”
Occupancies dropped nationwide to about 22% in April. By mid-May, the AH&LA had issued a press release headlined, “Hotel industry on brink of collapse.”
“The hospitality industry is in a fight for survival,” CEO Rogers said in the statement.
And the slide continued.
Marriott alerted 115,000 furloughed employees —about two-thirds of its workforce—that they should expect to be out of work until October. Spared workers were warned that more job cuts were coming. The company’s debt deepened to $12.23 billion by the end of the first quarter.
By then, Hilton Worldwide had closed 950 hotels, including 10% of its hotels in the United States.
Among the areas of operations that were particularly hard hit: Food and beverage departments. Marriott CEO Arne Sorenson told investors in May that foodservice had been “significantly truncated today compared to what it was just a few months ago.”
Sotherly Hotels, a real estate investment trust (REIT) that owns 12 hotels, completely shut its food and beverage outlets.
Groups that maintained their foodservices made significant changes to meet the faint demand while keeping guests and employees safe.
“No more buffets, mostly packaged counter breakfast,” John Russell, CEO of Red Lion Inns, explained to investors. “Room service will look a lot different. Those that have restaurants, the way [they’re] seated and the way you order your food and get your food will be different.”
Macro conditions hit bottom in April, according to STR, a researcher that focuses on the lodging business. For the week ended July 11, occupancy rates for U.S. lodging properties had edged back to 45.9%--still 38% below the year-ago figure, but double the rates clocked three months earlier.
RevPAR has been more sluggish, according to STR. It pegs the nationwide average at $44.67, a 54.6% decline from the same period of 2019.
So where does that leave the lodging industry today?
The outlook is still bleak. The AH&LA's Rogers has warned that 8,000 hotels could go dark permanently in September, and billions in direct federal aid is needed to save the industry.
“A full recovery will take time, and it could take several years to return to the hotel demand levels we experienced in 2019,” Hilton CEO Chris Nassetta told financial analysts seeking his assessment. “But as we shift our focus to the future, we are incredibly confident about the long-term prospects of the business and our model.”
The byword seems to be uncertainty. No one knows how long the recent surge in new coronavirus cases will last, what impact that will have on economic recovery, and, crucially, what the upshot may be for corporate and leisure travel.
“I wish we had all the answers, but we don’t. Nobody does,” Keith Barr, CEO of Intercontinental Hotel Group, says in an assessment posted on the AH&LA’s website. “Things keep changing fast.”
“We believe this uncertainty will be reflected in muted lodging demand in the near term,” Dave Fulsom, CEO of Sotherly, told financial analysts. “As a result, the company must continue to creatively seek alternative sources of business until travel demand normalizes.
Lodging foodservice managers are already exploring ways of coping, short-term and long. They’re also finding that longstanding problems for the sector, like labor, haven’t gone away.
Still, operators have voiced a steadfast optimism.
“While we believe corporate and international travel will continue to lag,” says Sotherly’s Fulsom, “we are starting to experience some positive momentum as an industry and as a company.”
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