The U.S. economy is in recession, reported Oxford Economics last week. The analytical firm joined U.S. Travel Association in saying that if the U.S. enters a protracted recession, it will be because of the loss of business in the nation’s travel and tourism industry.
“This event, this pandemic, really breaks all our models.” Jamie Lane, CBRE Hotels Americas Research
During STR’s weekly webinar on March 26, Jan Freitag, senior vice president of lodging insights at the travel research company, incredulously shared unprecedented news.
In the week ending March 21, just 10 days after the World Health Organization declared COVID-19 a global pandemic, RevPAR at hotels in the U.S. dropped by an average of 69.5 percent.
“It is the steepest weekly decline we’ve ever recorded ever in our 30-year history,” Freitag said.
STR has charted double-digit decreases in hotel business performance for each of the past three weeks. And it’s far from over as Freitag said they expect the numbers to grow worse in the coming weeks “as travel in the United States and North America overall dwindles.”
Explanations in the slides displayed during the online presentation had words and phrases such as “tumble,” “free fall” and “unreal.”
“We have never reported 15 percent occupancy for the week,” Freitag said.
Hotels experiencing the steepest drop in occupancy are higher-end properties that accommodate meetings and conventions. RevPAR in the luxury, upper-upscale and upscale segments dropped 82.3 percent, 83.5 percent and 74 percent, respectively, year over year.
In the week ending March 21, groups business at hotels in U.S. and Canada was at 1 percent, reported STR. Jan Freitag, SVP at STR, said in a March 26 online presentation the number is most likely a false positive as groups business has completely bottomed out since the World Health Organization on March 11 declared a COVID-19 global pandemic and President Trump on March 13 declared the virus a national emergency.
RevPAR in the upper-midscale, midscale and economy classes, declined 63.9 percent, 53.1 percent and 43.7 percent, respectively.
Freitag noted hotels in the lower-priced tiers were accommodating long-term guests, dislocated residents and those deemed essential travelers such as truck drivers and health-care professionals.
For those same reasons, hotels along interstates and small metro areas in the U.S. last week fared better than those in large cities and near airports, noted Jamie Lane, senior economist with CBRE Hotels Americas Research.
CBRE Hotels Americas Research reported on March 19 hotels in large cities and in airport markets saw a deeper decline in business performance than properties in smaller markets and along interstate highways.
Unfortunately, that business is not enough to buoy the hospitality industry.
Oxford Economics reported last week that the U.S. economy is in recession.
It joined the U.S. Travel Association in reporting the dramatic downturn in the GDP is because of the loss of business in the nation’s travel and tourism industry. Travel industry losses of $355 billion will exceed those in any other industry sector. That sum translates into $809 billon of economic output overall.
“As economists we look to the past to inform the future,” Lane said. “This event, this pandemic, really breaks all our models.
“The expectation for the year ahead is significantly worse than both 9/11 and the great financial crisis (of 2008) combined as to how it’s going to hit the hospitality sector in the U.S. and around the world.”
In an updated forecast released on March 24, Lane said the U.S. lodging industry faces two headwinds – a contraction in overall economic activity and the need for social distancing, which includes non-essential travel.
The halt in business activity will force RevPAR to decline by 37 percent this year, Lane said. The second quarter will experience the deepest contraction of more than 60 percent.
LISTEN: Episode 260 of Lodging Leaders podcast features analysts and their take on the state of the U.S. hotel industry amid the COVID-19 crisis.
Before the spread of COVID-19 in the U.S., CBRE had forecasted RevPAR gains would be flat through 2020.
“The U.S. market,” Lane said, “is about one month from reaching the trough of this downturn.”
Financial aid is on the way, however. On Thursday, Congress passed a $2.2 trillion COVID-19 relief bill and President Trump enacted it with his signature. Long Live Lodging / Lodging Leaders podcast will have more on what that act means to the hotel industry in upcoming reports.
Looking to China
CBRE foresees a “quick recovery” once the coronavirus crisis has eased and social restrictions are lifted. RevPAR will grow by 38 percent in 2021 and return to 2019 levels by 2022.
Lane bases the outlook on how the hotel industry recovered from past major shocks. And, he noted, “China’s hotel market already has started a recovery this quarter.”
Other data research firms have looked to China to try to determine the trajectory of the pandemic as well as the fall and rise of the hotel industry.
China in December, notified the World Health Organization that a pneumonia-like virus was infecting people in Wuhan in the Hubei province. On Jan. 23, the city went into lockdown as the virus spread to other areas of the country.
The first case in the U.S. was announced on Jan. 21. On Feb. 29, officials announced a second person in California contracted the virus.
The day before, the Centers for Disease Control and Prevention advised the immediate risk to the general public in the U.S. was low.
One month later, it’s a drastically different story.
On Sunday afternoon, Johns Hopkins Center for System Science and Engineering’s dashboard showed 135,500 confirmed cases in the U.S.
A screen shot of the dashboard on the Johns Hopkins Center for System Science and Engineering on the afternoon of March 29 shows the U.S. has more confirmed cases of COVID-19 than any other country in the world.
China has reportedly seen the number of confirmed cases of COVID-19 significantly diminish. In relation, hotel performance is seeing an uptick.
HotStats on March 24 reported occupancy in China declined by 40 percent from January to February.
Total revenue per available room or TrevPAR dropped 29.4 percent while gross operating profit per available room or GOPPAR fell 63.8 percent in January year over year.
In February, TrevPAR fell nearly 90 percent and GOPPAR plunged 216.4 percent from the same time a year ago.
GOPPAR, Eisen said, is the “holy grail” of the hotel business. “It’s your profit. It’s the bottom line.”
Eisen said what stands out in China’s data is how hotel operators scrambled to cut costs and save money. For example, in January Hilton closed 150 hotels and decreased labor costs by 41 percent.
He expects to see similar results in U.S. markets for March.
“One of the things that we always talk about with our data is flow through and flex,” he said. Flow through is how much revenue is flowing down to the bottom line.
“Right now, (U.S.) hotels are in a flex positon and that’s when you’re in a revenue shortfall and how well you can control costs within that,” Eisen said.
“What we saw in Asian is there was kind of a positive flex. A lot hotels became more efficient in their operations and showed the dollar decreases in GOPPAR were actually smaller than decreases in TrevPAR.”
The lesson U.S. hotel operators can take from this is while they are not taking in much revenue, “it’s incumbent on hoteliers to control costs wherever they can,” Eisen said.
“We saw in Asia some of these markets were able to do that better than during the slowdown of the global recession or 9/11.”
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.