Hotel Owners Seek a New Way Forward

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Hotel owners and operators are seeking a way forward amidst the storm of COVID-19, reinventing business models and turning to each other for advice and guidance.

Hotel Owners Seek a New Way Forward

Owners and associations trying to figure out what it will take to rebuild the industry

“We’re all trying to figure this out together, and it’s going to be interesting to see how that plays out for those states and those communities that lifted restrictions earlier and those states that lifted 30 or 60 days from now, how they ramped up in their hotels.” Mitch Patel, CEO, Vision Hospitality Group

Though nearly 20 percent of the nation’s 57,000 hotels have closed, according to reports, the rest have remained open throughout the COVID-19 pandemic.

Occupancy is very low with eight of every 10 hotels rooms reportedly going empty since the novel coronavirus stopped U.S. travel and commerce in its tracks in mid-March.

There is a small glimmer of hope as STR reported that for the week ending May 2, occupancy climbed a bit from the week before to an average of 28.6 percent. In the first week of April, occupancy was 21 percent. The latest metric is still down 58.5 percent from the same time period last year.

“Week-to-week comparisons showed a third consecutive increase in room demand, which provides further hope that early-April was the performance bottom,” said Jan Freitag, STR’s senior vice president of lodging insights, said in a statement.

“TSA checkpoint numbers, up for the second week in a row, aligned with this rise in hotel guest activity, which still remains incredibly low in the big picture. Overall, these last few weeks can be filed under the ‘less bad’ category.”

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The COVID-19 crisis is far from over. How long the crisis remains is still an unknown.

As many states are taking steps to reopen their marketplaces, government leaders and business owners may want to look to the hotel industry for some best practices.

The American Hotel & Lodging Association in late April announced the launch of “Stay Safe,” a program that will ensure travelers and employees that hotels that practice the program’s hygienic and safety standards are at low-risk for the virus.

Despite that, owners and operators know life will never go back to way it was before the pandemic.

Mitch Patel, CEO of Vision Hospitality Group, said as an industry, programs such as Stay Safe are what it will take to help the hospitality industry rise from the ashes of the crisis.

LISTEN: Episode 269 of Lodging Leaders podcast features Mitch Patel of Vision Hospitality Group and John Hardy of The Hardy Group on what it might take to continue to do business under the threat of COVID-19.

Vision Hospitality has kept its 40-some hotels open and its leaders are trying to figure out what the hospitality business will look like in the coming months and years.

Vision Hospitality Group is in Chattanooga, Tennessee. The company has hotels in six states, but much of its portfolio is in its home state as well as neighboring Georgia, the first state to announce it is reopening. Tennessee followed right behind.

Patel said his revenue management team is seeing a slight uptick in bookings in both states.

“My thesis is the opening up of the economies and lifting restrictions are going to result in a pickup in demand in travel,” he said, “but it’s still going to be very slow because there are people who are obviously still afraid.

“We’re all trying to figure this out together, and it’s going to be interesting to see how that plays out for those states and those communities that lifted restrictions earlier and those states that lifted 30 or 60 days from now, how they ramped up in their hotels.”

The U.S. Chamber of Commerce provides updates on states and their reopening pace and guidelines for businesses.

What a Rebound Looks Like

Patel and other U.S. hoteliers might get some idea as to what a ramp-up may look like by watching China, where the novel coronavirus first took hold.

Emmy Hise, senior consultant at STR, participated in a session called The Big Comeback, part of LodgingStream, Long Live Lodging’s digital conference on April 30. She noted the outbreak in China – and therefore its recovery – is eight weeks ahead of the U.S.

In January, at the height of the crisis in China, hotel occupancy was around 9 percent. By the end of March it had climbed to 30 percent. As for price tiers experiencing a comeback, midscale and economy hotels are driving the industry’s recovery as 70 percent of travelers are choosing to drive to destinations. Airline travel is in the single digits as is business travel, Hise said.

Brian Waldman is executive vice president of investments at Peachtree Hotel Group, which owns and operates 50 hotels, most of them in the select-service category. He took part in LodgingStream’s The Big Comeback panel discussion and noted his company closed two hotels and kept the rest open. The properties have good general managers and Peachtree did not want to lose them in a layoff. Like Vision Hospitality Group, Peachtree furloughed hourly employees and continues to operate the hotels with a lean staff.

Peachtree’s hotels in Georgia are starting to see a rebound in business, Waldman said, and managers are generating revenue by serving guests from health care and other fields. They’re also cutting back on expenses by closing areas of the hotels that are not being used.

The thought is to slowly reopen those services and accommodations as occupancy picks up, but when that will happen is anyone’s guess. “Guests expect those services,” Waldman said, “But it’s a pretty fine line.

“As business ramps back up, we are able to bring people back, but it’s not going to be an overnight thing.”

Peachtree qualified for money from the Small Business Administration’s Paycheck Protection Program as part of the federal government’s Coronavirus Aid, Relief and Economic Security Act but has not decided on how to divvy up the funds in bringing employees back.

Waldman anticipates more business toward the end of June, but noted, “I don’t know if that’s really feasible. We’re hoping we can extend it out and bring back employees when needed.”

Crestpoint Companies of Mason, Ohio, posted this photo on Facebook in January of its Tru by Hilton in Monroe, Kentucky. It is one of two hotels Crestpoint had under construction when the COVID-19 crisis hit the U.S. with full force in mid-March. Kal Patel, CEO of Crestpoint, said he plans to open the hotels this summer as well as ramp up business in his other properties as the pandemic eases and states reopen for business.

Kal Patel, CEO of Crestpoint Companies, with about eight hotels in Ohio and Kentucky, said his business also will receive funds from the Paycheck Protection Program. He agrees the re-employment strategy is a balancing act as he ramps business back up in his hotels, which remain open. Several of his hotels are being used to house vulnerable populations such as homeless and women and children fleeing domestic violence. Others are serving health care workers and first responders.

Kal Patel also participated in The Big Comeback panel and noted he has two hotels under construction with plans to open this month and in June. Ramping up business at those hotels will run parallel with building business back up in the existing properties, he said.

Essential Business

In both Georgia and Tennessee, governors deemed hotels an essential business. That was evident as the COVID-19 raged through the population but also after a tornado struck Chattanooga on April 12, Easter Sunday. It killed about 10 people and injured many others and it damaged about 150 buildings.

In a strange turn of events, Chattanooga hotels were more important than ever as they housed displaced residents, first responders and utility crews.

Call it a mixed blessing that Chattanooga hotels were second only to Guam as having the highest occupancy in the world in the days after the disaster, said Mitch Patel, citing data his company received from STR.

The culmination of events makes hotels owned and operated by Vision Hospitality and others worth watching as they work to meet immediate needs while planning to operate post-pandemic. In doing so, Vision Hospitality and other hotel owners and operators are writing the new playbook for doing business under the shadow of the coronavirus.

“We’ve stayed open and we’ve had to learn a lot on the fly because we never closed,” Patel said. “We took immediate action, learning from our peers, talking with brand companies and we put some standard operating procedures in place about six weeks ago.

“Now we’re kind of reconciling all of that and learning a lot of what we’re doing, everyone else is doing that, too.”

Vision Hospitality Group broke ground on the Hampton Inn in Blue Ridge, Georgia, a month before the novel coronavirus put the U.S. in a state of emergency. Georgia is the first state to announce plans to reopen its economy and Mitch Patel, CEO of Vision Hospitality, said his company has no choice but to continue to move forward on this and other projects under development while putting a hold on those in planning stages.

Major hotel companies such as Marriott International and Hilton are frequently meeting with owners, including Mitch Patel, to figure out what it takes to stay in business during the coronavirus crisis as well as what to do as the pandemic eases.

But brands won’t have the final say. Especially as the industry faces a dramatic shift in business and the costs associated with surviving over the next couple years.

“There are two things here,” Patel said. “Number one, we have to take care of our team members and our guests and their safety. Number 2 is how do we build confidence in our team members and guests? That’s going to be a challenge as we come out of this. There are team members we had to furlough that we’re trying to bring back and there are going to be many guests that are going to be reluctant to travel.”

In keeping employees and customers safe, there is no cutting corners, Patel said. “For the long term picture, we have to reevaluate our business model, no doubt about it.”

Any new program will cost money. That’s a current challenge but finding money to build on an existing hotel business was difficult before the pandemic struck. In the beginning of the year, the hotel industry was facing flat revenue growth as oversupply evened out demand. Labor costs were growing and the cost to market and acquire guests was greater than the year before.

“Our margins were diminishing before the crisis. In the first two months of 2020 – that’s what’s so sad about all of this. We have to rethink this business model.”

Keeping hotels safe and clean will mean more chemicals, equipment and employee training. “It’s all going to cost more,” Patel said. “Where is the balance now?”

Besides his seat at the table with Marriott and Hilton brands, Patel is collaborating with other owners across the country to come up with ideas and best practices to “move forward and keep our businesses sound.”

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