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Hotels Chains Maneuver to Deal With Coronavirus Gut Punch
March 19, 2020
Source: Yahoo Finance
From furloughs and layoffs to withdrawn guidance and loyalty program modifications, the big hotel chains were maneuvering to survive the novel coronavirus outbreak.
The actions they are taking are hardly novel as they’ve been used by hotels and other industries during past crises such as 9/11 and the 2008 financial crisis. However, American Hotel & Lodging Association CEO Chip Rogers said Tuesday that the adverse impact that the lodging industry is grappling with is larger than 9/11 and the 2008 financial crisis combined.
Meanwhile, the U.S. hotel sector is reportedly asking the Trump administration for $150 billion in direct aid, and $100 billion for other travel industry companies.
The lodging industry hurt takes on global proportions, however.
The maneuvering is taking place as hotel industry revenue per available room in the United States fell 11.6 percent for the week ending March 7 compared to the year-earlier period, according to Jan Freitag, senior vice president at STR.
“We registered RevPar declines against all classes, all chain scales, and across all location types,” Freitag said during a webinar Monday.
In China, occupancy rates fell some 89 percent at the end of January, but creeped up to a 76 percent decline by the week ending March 2, STR found. Some 2,600 properties had closed in China by the end of January, and 80-90 percent of them have reopened, Freitag said.
In these countries under lockdown, occupancy was down in Japan (-62 percent), South Korea (-74 percent), Italy (-75 percent), and China (-76 percent) for the week ending March 7. Major European markets, according to STR were reporting occupancy below 50 percent for that same week, STR found.
The big hotel chains are taking steps to try to cope.
Marriott International revealed that it is furloughing tens of thousands of employees, who will receive healthcare benefits but no pay, and reducing hours for others as it adjusts operations to cope with the coronavirus outbreak.
Marriott, which had 174,000 employees at the end of 2019, hopes to bring back some of the furloughed employees when the crisis abates.
Hilton Worldwide Borrows
Hilton Worldwide notified lenders March 5 that it would tap into a revolving credit facility, borrowing the remaining $1.75 billion available under the revolving loan.
Hilton stated that it increased these borrowings, at an interest rate of 2.18 percent, as a precaution to preserve cash and maintain flexibility “in light of uncertainty in the global markets resulting from the COVID-19 outbreak.”
Hilton intends to use the loan for working capital and general corporate purposes. As of March 6, Hilton had $2.1 billion of cash equivalents at its disposal.
Hilton and Marriott are tweaking their respective loyalty programs to respond to the downturn.
Hilton told Hilton Honors members that it “knows the current travel environment may limit your ability to stay with us.”
It told members that all Hilton Honors points expirations would be paused through May 31, and the requirements for achieving tier status for 2021 will be updated. That deadline could be moot in certain geographies if the crisis hasn’t run its course until then.
“Since the situation is still evolving, it is too early to make and announce specific changes,” Hilton stated. “We are committed to sharing details as soon as possible.”
Marriott was somewhat more generous as it paused points expiration through August 31. It also extended suite night awards by a year; these awards would now expire December 31, 2021.
Marriott Bonvoy members who have free nights coming to them because of credit card benefits and other promotions, and if they would normally expire at the end of the year, they can use them through January 31, 2021.
Marriott said it is too early to adjust any changes in earning status for 2021, and would update them later.
Accor SEE Sees china improving
Accor CEO Sébastien Bazin said of China during a CNN March 6 that “it’s a mess.” Some 80 percent of Accor’s 25,000 employees in China are currently working from home, he said.
“We are preparing for the worst,” Bazin said. “At the same time, I think it is actually getting better in China, as we speak.”
Hyatt Withdraws Guidance
Hyatt withdrew its 2020 guidance on March 12 “due to the impact on travel demand of Greater China, in part as a result of new corporate travel restrictions in North America and Europe, as well as near-term cancellations outside of Greater China, as a result of the COVID-19 outbreak.”
In its fourth quarter earning announcement on February 19, Hyatt projected fiscal 2020 net income of $113 to $144 million. The company had expected more than 80 hotel openings and to grow units, on a net room basis, 6.5 to 7 percent.
That guidance — along with the hospitality industry’s previous assumptions about 2020 — are now largely history.
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