• The Lost Year: How COVID-19 Has Altered the Hotel Industry

    The Lost Year: How COVID-19 Has Altered the Hotel Industry

    Hoteliers Grapple With Human Consequences As Millions Remain Unemployed

    Workers wearing protective masks stand behind plastic barriers at the front desk of a hotel in Fort Lauderdale, Florida, on June 25, 2020. (Bloomberg/Getty Images)
    Workers wearing protective masks stand behind plastic barriers at the front desk of a hotel in Fort Lauderdale, Florida, on June 25, 2020. (Bloomberg/Getty Images)

     

    At the outset of the COVID-19 pandemic, few hoteliers really understood the width and breadth of the crisis.

    In an industry that has proved cyclical in the past, many were inclined to compare it with the crises and black-swan events they’d experienced before, expecting a deep, but ultimately short, disruption to their businesses. For some, however, very human moments and personal experiences quickly showed this wasn’t like anything else they had gone through.

    Thom Geshay, president of Davidson Hospitality Group, recalled a May 2020 trip from his home in Atlanta to donate stem cells to his cancer-stricken brother in Houston.

    “I got to the Atlanta airport, and it was a ghost town,” he said. “I mean, literally empty. This is the busiest airport in the world, and I’m going through security with a handful of people and had the plane mostly to myself.”

    Upon arriving at MD Anderson Cancer Center where his brother was being treated, the reality of the COVID-19 pandemic was laid out as clearly as possible.

    “The process to gain admittance to the hospital was like something out of a movie almost: suiting up, sanitizing, temperature checks, mask checks, questions, wristbands — all just to get in,” he said. “I felt like I was Maxwell Smart going through all these different doors to get out the other end. And then once I went in to see my brother, we still couldn’t be together. We’re literally in opposite rooms. I’m there to donate stem cells to him to save his life, but a hug was out of the question.

    “That’s when the reality sunk in for me that this isn’t what we thought in the early days would be something that would last 60 or 90 days. We were thinking this would be like 9/11 or The Great Recession, and we’d just have a dip, but it wasn’t really going to last long, right?”

    Since the World Health Organization declared COVID-19 a pandemic on March 11, 2020, the hotel industry has endured its most difficult and prolonged drop in demand on record, with revenue per available room falling to $14.71 globally at the depths of the crisis in April 2020, according to data from CoStar’s hospitality analytics firm STR. In total, 28,084 hotels representing 3,915,416 rooms having closed for some portion during the crisis. At the peak, near the end of April, 2.7 million rooms in STR's database were offline at once.

     

    It took almost exactly a year following that WHO declaration for hotel occupancies to broadly climb up back above 50%. Global hotel occupancy in 2019 was 68.3%.

    Since that point, the hotel industry has undergone seismic shifts not experienced in decades. The American Hotel & Lodging Association estimates as much as 70% of the U.S. hotel workforce was laid off or furloughed and those that remained were forced to learn new stringent cleanliness procedures necessary to help guests feel safe traveling again.

    Mike Deitemeyer, president and CEO of Aimbridge Hospitality, described it as a “brutal and difficult year." What sticks out when he reflects on the crisis from a business perspective, he said, is the number of displaced workers.

    He said he's proud of how his company supported its workforce, including the 37,000 associates laid off or furloughed at some point during the downturn. Among other initiatives, Aimbridge established a 501c3 charitable organization to support those workers.

    However, he said, if there’s anything Aimbridge and the hotel industry could’ve done better with the benefit of hindsight, it would have been providing those workers even more support during a remarkably bleak period.

    “Our folks on the front line — you could not do enough to thank and reinforce and to try to support our people in the field,” he said. “In hindsight, understanding what they’re dealing with, I perhaps would’ve invested even further in that than we did.”

    Nearly 4 million leisure and hospitality jobs have been lost in the U.S. alone since February 2020, according to the Department of Labor, and millions more have been lost across the globe.

    “We’ve lost a ton of great employees,” Geshay said of the hotel industry. "I have a fear or a concern that we’ve lost a lot that won’t come back. A lot of industries have thrived during the pandemic, and [those employees] have gone somewhere else.”

    In a year of ongoing turmoil, hotel employees have been asked to do more with less, and there are examples of people going above and beyond.

    Jeremy Welter, president and chief operating officer of Ashford Inc., offered as an example a general manager who put in extra effort after one of the company's hotels cut its landscaping service. Ashford Inc. oversees hotel real estate investment trusts Ashford Hospitality Trust and Braemar Hotels & Resorts.

     

    The general manager "was so proud of the property that he would bring his personal lawnmower there every two weeks and cut the grass,” Welter said by email. “No one asked him to do it, but he took ownership of the hotel and went above and beyond to deliver for our guests.”

    Ashford Hospitality Trust was among the hardest-hit hotel REITs during the pandemic in large part due to the company carrying a high level of debt during a historically low-revenue environment. CEO Rob Hays said his team “completely rethought the cost structure of our hotels in order to minimize costs and maximize liquidity” during the crisis.

    The moment in the crisis Hays said he will remember most occurred in the middle of March 2020.

    "By that time, it was clear that our hotels would be significantly impacted by the pandemic," he said. "We had to quickly cut costs, including making massive reductions to both corporate associates and to hotel workers. Unfortunately, we were forced to let go of so many wonderful associates who had been with us for years. The severity of this crisis hit me in a hard way that day.”

    Following the depths of late March and April, the hotel industry began to experience a gradual return of demand through the summer leisure travel season. While occupancies and revenues were a fraction of what they were a year prior in 2019, incremental demand increases, along with forbearances and leniency from lenders, were enough for hotel owners and operators to stave off massive closures and bankruptcies.

    But Deitemeyer said perhaps the most challenging point during the crisis was when those gains were wiped out by a second downturn in early winter.

    Before that point “we held the course,” he said.” We invested in things, and we had to make tough decisions, but we held the course related to our [overall business] strategy. Then when the winter came and we were shutting back down and talking about virus mutations, there was a low point there where we internally really had to step back and think, ‘Do we need to make a larger strategy shift and make some different decisions?’”

    Deitemeyer said what ultimately pulled Aimbridge and the hotel industry back from that brink was the burgeoning promise of widespread vaccinations and the possibility that it could ultimately unleash a wave of pent-up travel demand.

    Deitemeyer said it’s telling that even Aimbridge, the largest third-party operator of hotels in the world, faced this moment of crisis, and he’s unsure how the company he led before merging with Aimbridge — Interstate Hotels & Resorts — would have fared on its own.

    “We had scale that allowed us to do the types of things that would be hard for a management company with 40 or 50 hotels. Yes, Interstate was still large, but I think the scale [from Aimbridge and Interstate’s merger] was a huge advantage for us,” he said.

    Geshay agreed that roughly six months into the crisis “it started to get a little dicey,” even though Davidson works with a group of well-capitalized owners. Those owners focus on full-service properties with higher fixed costs which have had lower demand during the pandemic than their select-service counterparts.

    “Lenders were being cooperative, but the thought was that wouldn’t last forever,” he said. “Service providers were being cooperative, too, but they need to be paid because a lot of them are small businesses and also need the money. So managing the flow of cash when these hotels have massive losses every month — that was a real strain on the property teams, and frankly, the corporate team.”

    How Things Have Changed

    Various aspects of the hotel industry have changed out of necessity during the COVID-19 pandemic, but what sticks out most to industry leaders is guests’ increasing interest in cleanliness and safety and the changing landscape for meetings and large events.

    While vaccinations are expected to lead to a greater degree of comfort for travel among the general public, Geshay said he doesn’t expect expanded cleanliness programs to go away “at any point soon.”

    “We used to be very discreet about our public space cleaning, for instance, and we’d perform much of that at night or during times when guests were not present,” he said. “Now we do it continually in full view of guests, and the guests appreciate it, frankly. They want to see it, so we don’t hide it anymore.”

    In an email interview, Richard Stockton, CEO of Braemar, said he expects “enhanced hygiene standards including frequent cleaning of high-touch surfaces and availability of hand sanitizers” to be among the permanent changes to the industry as a result of the COVID crisis.

    “Guests are clearly going to be more focused on hygiene standards and social distancing,” he said. “These will become standard expectations for many. Masks will continue to be worn by many guests, although perhaps not expected of hospitality workers.”

    He said technology adoptions have been key through the course of this year to ensure greater social distancing at hotels.

    Geshay said that’s been a particularly challenging transition for the hotel industry.

    “We didn’t have a playbook, so we were king of making it up as we went,” he said. “We were trying to drink from the fire hose of what the CDC was saying and what the news reports were saying, all in the context of we’re a high-touch business and now we have to convert to a no-touch business.”

    Sources agreed that the shift to more remote working and higher use of teleconferencing technology are going to have an impact on how hotels do business, particularly leading to expansions of hybrid conferences, but there will be good and bad aspects for hotel demand.

    The online component to meetings "will be a larger component than we’ve ever had, and that will be the norm at least for several years to come,” Deitemeyer said.

    “Hybrid meetings will be the next step towards how we communicate and how we work. So from a meeting and technology capability, how we’re broadcast and how we’re interacting in some of those larger forms will evolve and certainly will change.”

    Geshay noted that more employees working away from offices does open the door to smaller meeting demand, though.

    “Humans crave interaction, and there’s some meetings and experiences that you just can’t duplicate on a Zoom call,” he said.

    Richard Katzman, managing director of HVS’s Mexico City office, agreed.

    “If you have more hybrid arrangements of being part at an office and part at home, then corporations will need to do more smaller meetings, like team-building exercises,” he said.

    What Deitemeyer doesn’t expect to change tremendously is food and beverage. He said there were early concerns that restaurants would need to be drastically changed to account for social distancing but high demand likely won’t allow for that.

    “I think the way we eat and dine and the communal aspects of that, will come back [despite] the early thoughts that that would change forever,” he said.

    Pain Around the Globe

    There is seemingly no corner of the global hotel industry that was spared the pain of the COVID-19 pandemic, but the recovery is not expected to be as uniform.

    Katzman said it’s hard to generalize how countries and markets within Latin America will fare going forward.

    Because Mexico in particular has such a strong base of business demand for hotels, he said the fate of the recovery in that country will be driven by some operational changes and hoteliers’ ability to better define why guests are traveling.

    “What we’re going to find moving forward is a need to be much more nuanced on the reasons why travelers hop on a plane and stay at a hotel,” he said.

    Business travel for administrative purposes might be less likely, but revenue-generating business travel — for example, sales — could persist, he added.

    Markets even within Mexico face different fates depending on whether they have stronger bases of domestic demand to counteract the drop in international travel from feeder markets such as the U.S.

    The level of governmental support of hotels and small businesses has varied widely by country. Katzman said that support has been nonexistent in Mexico. Instead, officials there seem to be more reliant on getting a boost from stimulus efforts in the U.S.

    “The strategy of this government is for the benefits of stimulus in the U.S. to spill over,” he said. “There are some direct ways that works, like if people start buying cars in the U.S., then they’ll start cranking them out from Mexican plants. But there’s been no direct help for people in the hotel industry at all.”

    Jesper Palmqvist, area director for Asia-Pacific at STR, said it’s similarly difficult to generalize across the region he oversees, but given that various nations had suffered through previous pandemics, some countries are more poised for a robust and quick rebound.

    “Taiwan is one of the countries that obviously had fewer cases. It’s very low,” he said. “That was entirely down to being prepared. They knew straight away. They had the tracking, tracing, control and testing so quickly because of SARS.”

    The economic impacts of the pandemic, though, are often dictated by political decisions that can be debated, Palmqvist said. He noted even New Zealand’s response, which has been lauded globally, could be criticized for going too far at times with massive parts of the country closed down when a single case is detected within that country.

    One major change he expects to come from the pandemic is the trajectory for outbound Chinese travelers. Almost every country and hotel around the globe has been eager to get a greater share of that demand, but Palmqvist expects Chinese travelers to be more domestically focused than ever coming out of the pandemic.

    “I think Chinese travelers will absolutely go back to Thailand or Vietnam or wherever they go, but in a much lesser capacity, even over time,” he said. “That’s going to be different. You can’t have that dependency on the Chinese anymore.”

    Palmqvist said that might spur greater demand for international hotel companies to invest in China, especially in midscale hotels.

    “I think the global companies will look at [that segment in China] and go ‘That’s where we should be’ because that’s how you ingrain yourself and really put your market down in China,” he said. “But then the competition is going to be pretty stiff because brands are still popping up frequently in China.”

    Looking to the Future

    Overall, in the face of the worst full year in the history of the industry, many hoteliers remain hopeful and optimistic for the long-term prospects even if the near term remains challenging.

    “It’s been a tough year, but as we get into 2021, we’re incredibly optimistic,” Deitemeyer said. “We’re bringing our teams back together and working hard to support our hotels and are excited about the future.”

    Geshay agreed with the long-term optimism but also noted more help is still needed for people at the front lines of the industry.

    “Hospitality was one of the first industries that was really impacted, and it’s going to be one of the last to recovery,” he said. “We’ve all read the stats. This had a nine-times-greater impact on our industry than 9/11, and a big part of that hit the employment base. Prior to COVID, hospitality supported 1 in 25 American jobs. Now there’s still 4 million people out of work."