Hotels are betting on staycations to survive COVID-19
The global hotel industry is pinning its survival on staycations — 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 don’t 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 U.S. annually. Now, the industry will be lucky to hit half that — early June numbers are down 50%. With business and air travel barely breathing, hotel companies are betting on the staycation as a shortterm strategy for survival.
From two-day weekends to fullweek respites, leisure travelers 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 road map for those in Europe and America. During China’s May Day holiday, for example, occupancies topped 50% following months during which it was as low as 10%.
“Everyone saw a huge bounce, which was great,” said Michelle Woodley, 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% for two days. The holiday just solidified for us that when people have the opportunity, they will still travel close by.”
Analysts agreed that staycationers — often family and leisure travelers similar to timeshare fans — can boost U.S. and European hotel occupancies from April’s dismal 25% rates.
In the U.S. last month, Memorial Day weekend occupancy only reached 36%, though there were a few bright spots: New York City; Virginia Beach, Va.; Tampa, Fla.; and Phoenix surpassed 40%,
according to hospitality data company STR. In 2019, average U.S. occupancy was 66%, according to hospitality consulting firm HVS.
“Everyone believes leisure will pick back up before corporate” guests, said Jennie Blumenthal, who heads the U.S. travel, transportation and hospitality practice at PwC, also known as PricewaterhouseCoopers. At 35%, many hotels can break even, though high-end venues need at least 50% occupancy to turn a profit.
The broader hotel market has long been dominated by business travelers and conferences. Before COVID-19 struck, half of all Preferred Hotels guests were corporate travelers, while leisure guests made up between 20% and 30%. Now, companies that banned corporate travel because of the coronavirus are rethinking corporate travel going forward. This is bad news for the hotel industry.
Shannon Knapp, chief executive of Leading Hotels of the World, said 85% of the luxury resort chain’s 400 hotels were closed until recently. Now, the company is seeing some upward momentum. “Spain, Italy, U.K. and France are talking about lifting some of the stay-at-home restrictions,” she said. Some 30% of her locations are open; 70% 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’s been a recent spike in Florida and Georgia beach hotel bookings, too, where medical professionals have warned that “reopening” was premature.
Deborah Friedland, managing director and hospitality group director at EisnerAmper, said she’s doubtful staycations will be sufficient to keep many U.S. hotel companies afloat. She also poured water on industry hopes of a second half recovery.
“When you see a vaccine, then you’ll 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 travel restrictions that eliminate millions of potential customers, and while Chinese hotels are filling up, venues in other Asian countries are struggling, Ms. Friedland 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.
An April report from HVS expects many 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’re not yet seeing the massive distress that I expect to see once the lenders collect on loans,” Ms. Friedland said. “Right now, we’re in the honeymoon stage.”
Hotels most likely to survive are the high-luxury ones, fueled by wealthy travelers 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 travelers seeking isolation. Economy hotels are running more than double the occupancy of luxury hotels, according to industry experts.