The New York Hilton Midtown in New York City is one of many properties to close because of COVID-19 pandemic. Hilton announced Tuesday it was closing hotels in major cities. Other major hotel companies including Marriott International and Hyatt Hotels began to close properties as well. AAHOA president and CEO Cecil Staton says the major hotel franchisers are members of the association and he understands the predicament all major hotel companies face. He urges both the companies and the small business ownerswho license their brands to work together to come out on the other side of the crisis. (Photo: Reuters)
What’s a hotelier to do? The U.S. travel and tourism industry is in a dark time. And it’s growing darker day by day as the new coronavirus pandemic halts travel and forces businesses to turn off the lights. The hotel industry faces the real possibility that more than half of the country’s hotels –that’s about 22,000 –will be forced to close in the coming weeks.
Cecil Staton, president and CEO of AAHOA, has been in his new role for just four months. He is spending a lot of time reassuring members that while business is taking a beating, the hotel industry and the members themselves –most of them immigrants and offspring of immigrants who believe in the American Dream –are resilient and will weather through.
Staton recorded a fireside chat of sorts from his home where he tried to encourage members and others in the industry to keep their chins up.
WATCH: Cecil Staton, president and CEO of AAHOA, records an encouraging message for association members.
It’s not just lip service, Staton said in an interview with Long Live Lodging. The recording of that interview can be heard in Lodging Leaders’ podcast, Episode 256.
The association has been offering webinars and other forms of guidance to help hotel owners and operators navigate the rough seas.
“These are very difficult days,” Staton said. “I think we are all trying to come to terms with what all this means, for the short term and for the longer term depending on how long virus impacts economy.”
Travel has “cratered” and occupancy rates have gone from an average of 80 percent to 10 percent, he said.
China’s COVID-19 outbreak began to strain the country’s hotel industry about eight weeks before the virus reached the U.S. Italy’s hotel sector began to show drops in business performance about four weeks before the U.S. saw the impact. STR on Thursday charted the trajectory of a comeback in China to give U.S. hotels some idea as to when business might begin to return.
The big problem, Staton said, is many hoteliers are generating little liquidity in their businesses. Some have dipped into cash reserves, but that money will only last so long. Certainly not for months.
Questions the association has for its members is how lenders can help ease mortgage payment terms. Other options are for local municipalities to grant waivers on occupancy and other business taxes. Basically, hoteliers need significant financial relief as they face “a world of hurt,” Staton said.
STR reported on Wednesday that hotel occupancy in the U.S. declined more than 24 percent to 53 percent in the week ending March 14. Overall, average RevPAR dropped 32.5 percent to $63.74.
It’s fair to say the numbers grew exponentially worse since Monday with many hotels dropping to 10 percent occupancy. One hotelier told Long Live Lodging at that rate, he cannot make enough money to keep the lights on.
Hotel Asset Value Enhancement or HotelAVE has calculated it will take U.S. hotels five years to recover occupancy, revenue and profitability post-COVID-19 outbreak. That is if the crisis last less than four months and pandemic levels off with continued social distancing and rooms that are now under construction open. Researchers also expect travel to be less because of the psychological impact of the virus.
While AAHOA tries to help at the ground level, the association and other organizations are lobbying Congress and the Trump administration to pass a $1 trillion financial aid package that includes a proposal to give $150 billion to major hotel companies.
Staton said the key, however, is that hotel CEOs make sure a lot of that relief trickles down to franchisees.
He noted a Wednesday roundtable meeting of CEOs with President Trump, Vice President Pence and other White House officials. “I saw some of the hotel CEOs sitting around the table; I counted 10 of them who are members of AAHOA. The vast majority of their franchisees are AAHOA members.”
As for AAHOA members who are actively seeking relief from the franchisers, Staton said he and others in leadership at the association are in constant contact with the CEOs. “The brand CEOs and their teams are in crisis mode as well,” he said.
“You have to understand, we have a very important relationship. The hotels depend upon the brands and the brands depend upon the hotels. The hotels are empty and are unable to make payments of the franchise fees and other kinds of transactions that go on between the hotel and the franchiser. We’re in this together. You have to have that mindset. You have find a way to get across these treacherous waters together because you’re going to need each other on the other side.”
Staton said he thinks the brands are listening to owners, some better than others. “They are continuing to be responsive as things continue to change. It’s a day-to-day thing.”
Franchisers might issue a decision on brand standards or monthly payments one day and after hearing from franchisees only to modify a decision days later. “It’s a work in progress,” he said.
Where to find up-to-date information about COVID-19
AT A GLANCE
Here are some updates regarding the impact the new coronavirus outbreak in the U.S. Long Live Lodging will continue to update this chart as well as other information as part of its Special Report on Coronavirus and the U.S. Hotel Industry.
Lodging Econometrics has tracked the hotel industry since 1998. Its global database includes new-hotel pipelines as well as renovations and brand conversions. Hotel franchisers once eager to launch new brands are focused on converting existing hotels because it’s a faster way to recover revenue lost to the COVID-19 pandemic than through new construction. In Episode 346, Lodging Leaders explores the increasing number of conversions in the U.S. hotel industry and what owners and operators need to consider before repositioning an asset.
In the first few months of the COVID-19 pandemic in the U.S., financiers anticipated a swell of distressed hotel businesses. Some raised rescue funds to respond to what they thought was a pending crisis. Though there are financial rescues taking place, the level of such activity is far below what industry advisers and fund managers expected. Commercial real estate investors positioned to act in the early days of the pandemic held off and are now just beginning to unleash their cash hoards totaling billions of dollars. Episode 345 of Lodging Leaders podcast explores the state of capital investment in the hotel industry.