How Hotels Are Weathering A Hard Pandemic Hit

The fact that COVID-19 has hit consumer and business travel hard is well-known, but just how hard is just now coming into focus. A new industry report finds that nearly a quarter of all U.S. hotels are facing foreclosure as a result of plummeting revenues during the pandemic.

Market-watcher Trepp found that 23.4 percent of loans for hotels are delinquent by 30 days or more – the highest percentage ever logged. By contrast, just 1.3 percent of hotel loans were at least 30 days late as of the close of 2019.

“With record-low travel demand, thousands of hotels can’t afford to pay their commercial mortgages and are facing foreclosure with the harsh reality of having to close their doors permanently,” Chip Rogers, CEO of the American Hotel & Lodging Association (AHLA), said in a statement accompanying the report’s release.

Rogers said that closures could cost “tens of thousands” of U.S. jobs, calling on Congress to pass a proposed industry bailout called the Helping Open Properties Endeavor Act (or HOPE Act). The measure would aid small businesses that operate in the commercial real estate market using funds from the U.S. government’s Coronavirus Aid, Relief, and Economic Stability Act (CARES Act).

According to the letter to Congress, which was signed by 4,000 hoteliers and industry trade groups, the HOPE Act would allow owners to keep their businesses open and their employees on the payroll.

The letter noted that the U.S. leisure and hospitality sector has lost 4.8 million jobs since February – “more jobs than construction, manufacturing, retail, education and health services combined.” It added that experts estimate the industry will lose half of its 2020 revenues, or more than $120 billion in total.

“The hotel industry has been decimated by the COVID-19 health crisis,” the industry executives wrote. “The human toll on our employees and our workforce is devastating, with less than half currently employed. The economic impact to our industry is equally as dramatic, estimated to be nine times greater than the Sept. 11 terrorist attacks.”

Shaiza Damji of 360 Degree Hotel Group, which runs six hotels in Washington state near the Canadian border, told Marketplace that the biggest two expenses for hotel owners are their debt loads and their payrolls. They often take out a lot of debt to buy a hotel or build one from scratch, and paying that back is a big cost.

Damji said the industry is seeing “no conferences, no conventions, the tech industry’s not traveling, so it’s just really soft.” It’s getting harder and harder for her to pull together her monthly debt payments, requiring more and more drawdown from her savings. Damji said she’ll be tapped out in a few months and looking at default.

And it’s not just small hotel groups and individual operators who are facing problems – the industry’s biggest names have also been sounding alarms for some time.

Marriott noted in May that the pandemic was “having a more severe and sustained financial impact on Marriott’s business than 9/11 and the 2008 financial crisis combined.” Meanwhile, IHG reported in its most recent earnings call that revenues collapsed by more than 50 percent during the last quarter.

U.S. consumers don’t seem to be wholly averse to travel, or even to staying somewhere other than their homes. But the hotel category has been bumped from their favor.

By contrast, RV rentals have skyrocketed this summer. And while Airbnb took a beating in Q2 , its revenues returned to pre-pandemic levels during the current quarter, pushed by a surge in summer vacation home rentals. Airbnb reported that more than $9 out of every $10 a host earned was for rentals in areas other than U.S. major metros.

Rural hosts are emphasizing that their Wi-Fi can withstand the need, having fielded requests from guests looking to work remotely while away from home. And some hosts are noticing more large groups of friends in their mid-20s looking to escape.

So how will the hotel industry come back in the midst of the pandemic panic? Slowly – and with a bit of assistance from technology.

Slowly, because as a recent PYMNTS panel noted, though the data from PYMNTS and other sources consistently show that consumers do miss travel and would like to get back to it both domestically and globally, in the absence of a vaccine or the “all clear” from the CDC that getting on a plane is really sage, they aren’t going to do it. We could be looking at a comparably long period where consumers will favor shorter trips closer to home, and with the greater control provided by RV and whole-house rentals, possibly well into 2021.

That’s not to say hotels aren’t working overtime to bring those customers back through their doors before then – often by upgrading their technological offerings as part of their overall safety and cleaning advances. Social distancing and masks in lobbies, clear plastic barriers between guests and desk workers, and modified room-clearing procedures are increasingly being buttressed with voice-controlled hotel rooms (so people don’t have to share dirty remotes) and NFC-unlockable doors that allow customers to check themselves in from their mobile phones. A year ago, that was considered a coming-soon convenience – but today, it’s a demanded safety measure. And in slightly more out-of-the-box ideas, some hotels are even considering bringing in robots as guest-servicing agents.

Will it work?

Well, while a robot bellhop certainly holds a lot of native appeal, we imagine it will be somewhat less effective in luring guests than a vaccine would be, in terms of providing comfort and confidence.

Still, with nearly a quarter of the industry possibly facing closures and guests continuing to shy away, it does seem that new ideas – out-of-the-box or not – are what the industry needs right now.