You are here

Hotels bet on staycations to survive Covid-19

Washington

THE global hotel industry is pinning its survival on the staycation. Millions of them.

From Asia to Europe to America, people have been cooped up for months. Now, as lockdowns loosen, the shellshocked are emerging. Those with means desperately want to get away, but fear of the coronavirus remains very real.

So how do you take a break during the summer of pandemic? You avoid mass transit. You certainly do not fly. You stay close to home. In other words, you go to a hotel.

The American Hotel and Lodging Association said that pre-pandemic, there were 1.1 billion guest nights in the US annually. Now, the industry will be lucky to hit half of that. Early June numbers are down 50 per cent.

Your feedback is important to us

Tell us what you think. Email us at btuserfeedback@sph.com.sg

With business and air travel barely breathing, hotel companies are betting on the staycation as a short-term strategy for survival.

From two-day weekends to full-week respites, leisure travellers are headed out on the highway, driving for as long as five hours in search of room service and waterfall showers.

The experience of hotels in Asia has provided a roadmap for those in Europe and America. During China's May Day holiday, for example, occupancies topped 50 per cent following months during which it was as low as 10 per cent.

"Everyone saw a huge bounce, which was great," said Michelle Woodley, the president of Preferred Hotels and Resorts, which has 180 properties in the Asia-Pacific region (out of 750 worldwide). "We actually had a hotel in Chengdu, the Wanda Reign, that was at 100 per cent for two days. The holiday just solidified for us that when people have the opportunity, they will still travel close by," she said.

Analysts agreed that staycationers - often family and leisure travellers similar to timeshare fans - can boost US and European hotel occupancies from April's dismal 25 per cent rates.

In the US last month, Memorial Day weekend occupancy reached only 36 per cent, although there were a few bright spots.

New York City; Virginia Beach, Virginia; Tampa, Florida and Phoenix, Arizona surpassed 40 per cent, according to hospitality data company STR. In 2019, average US occupancy was 66 per cent, according to the hospitality consulting firm HVS.

''Everyone believes leisure will pick back up before corporate'' guests, said Jennie Blumenthal, who heads the US travel, transportation and hospitality practice at PwC. At 35 per cent, many hotels can break even, though high-end venues need at least 50 per cent occupancy to turn a profit.

The broader hotel market has long been dominated by business travellers and conferences. Before Covid-19 struck, half of all Preferred Hotels guests were corporate travellers, while leisure guests made up between 20-30 per cent.

Now, companies that banned corporate travel because of the coronavirus are rethinking such travel in the future. This is bad news for the hotel industry.

Shannon Knapp, chief executive of Leading Hotels of the World, said 85 per cent of the luxury resort chain's 400 hotels were closed until recently. Now, the company is seeing some upward momentum.

''Spain, Italy, UK and France are talking about lifting some of the stayat- home restrictions,'' she said. Some 30 per cent of her locations are currently open; 70 per cent will be open by the end of summer, she said.

Many hotels are reporting strong July and August bookings, with the caveat that a second Covid-19 wave could cause mass cancellations.

There has been a recent spike in Florida and Georgia beach hotel bookings, too, where medical professionals have warned that ''reopening'' was premature. Unsurprisingly, Covid-19 cases in both states are rising.

Deborah Friedland, managing director and hospitality group director at EisnerAmper, said she is doubtful staycations will be sufficient to keep many US hotel companies afloat. She also poured water on industry hopes of a recovery in the second half of 2020.

''When you see a vaccine, then you will really see the recovery,'' she said. ''It's difficult to look at other regions and draw similarities, when other governments have different freedoms, and recovery is really dependent on sticking to certain rules and requirements, such as social distancing and self-quarantine.''

European hotels are still grappling with border travel restrictions that eliminate millions of potential customers, and while Chinese hotels are filling up, venues in other Asian countries are struggling, she said. Singapore's hospitality sector, for example, has been a roller coaster of bookings and closings.

The vultures are already circling. Acquisitions, lending and new development are essentially frozen, while many hotels are propped up by temporary loan forbearances. ''I'm seeing a lot of distressed funds forming,'' said Ms Friedland. An April report from HVS expects many current hotel owners to hold on through the year, but they may be forced to sell next year to buyers who will maintain the properties until cash flows improve - and then sell or refinance.

''We are not yet seeing the massive distress that I expect to see once the lenders collect on loans,'' she said. ''Right now, we are in the honeymoon stage.''

Hotels most likely to survive are high-luxury, fuelled by wealthy travellers who in the past have returned swiftly after a crisis, or economy hotels with low overhead and snug footprints. Extended stay properties with in-room kitchens may also do well, attracting travellers seeking isolation. Economy hotels are running more than double the occupancy of luxury hotels, according to industry experts.

Properties centered on spas, pools and restaurants will struggle more, as will fly-to locations like those in the Caribbean or Hawaii, and those dependent on conferences or events. Many of these locations are opting to keep their doors closed for now.

''Hotels exist in a very thin band of profitability, and don't necessarily make money by opening,'' said Christopher Payne, head of the hospitality practice at law firm Ballard Spahr. ''How do you halfway-open a luxury hotel filled with amenities, but without the restaurants or weddings?'' BLOOMBERG

BT is now on Telegram!

For daily updates on weekdays and specially selected content for the weekend. Subscribe to t.me/BizTimes