Hotels slammed by pandemic selling ‘bonds’ for travel
CHICAGO _ Either closed down or operating with most of their rooms empty, hotels are finding ways to put cash in their pockets now for services provided later, spawning some enticing deals for consumers.
Take the 452-room hotel LondonHouse Chicago. It’s offering “bonds” that people can buy in $100 increments. Once those bonds mature after 60 days, they’re worth $150 _ a quick 50% return on investment. When the coronavirus crisis subsides and guests are ready to book, they can use the bonds to pay for everything from overnight stays to room service and drinks at the hotel’s rooftop terrace overlooking the river.
“You have to think outside the box in this landscape,” said Juan Leyva, vice president of operations at Oxford Hotels & Resorts. The Chicago-based company manages LondonHouse and several other properties in the city, including Hotel Essex and Hotel Julian, which are also selling bonds for future stays.
“We’re doing it to improve our cash flow so we can keep people working,” Leyva said. “And we want to be front of mind for guests when they start looking to book their travel.”
The trio of Oxford-run hotels are part of a small but growing network of listings on the new Buy Now, Stay Later website, one of several like-minded initiatives recently created to help salvage the beleaguered industry.
Another is Hotel Credits, where people essentially buy a discounted voucher to use at a particular property, typically through at least 2021. Your $200 turns into $300 at Acre, a luxury treehouse resort in San Jose del Cabo, Mexico. The same goes for a stay at the 19th century Villa Flori on the shores of Italy’s Lake Como and the hip Sixty SoHo in New York.
“It’s near-term capital for these hotels when they need it, and for consumers, there’s this incentivized discount to be able to take that dream stay later, when it’s safe,” said Hotel Credit’s Caitlin Zaino von During, CEO of Porter & Sail, a technology company that works in the hospitality space.
Yet another byproduct of the COVID-19 crisis is We Travel Forward, a site that aggregates offers from hotels aimed at having people spend now to get more later.
“It’s really starting to take off,” said Wade Breitzke, one of the creators of We Travel Forward. “We launched the site two weeks ago and are up to 80 or 90 properties.”
Breitzke is a founding partner of We Create Media, a hotel branding and marketing agency in Valparaiso, Ind. He said his company created the We Travel Forward website on its own dime, and it doesn’t intend to make any money off it.
“The industry is struggling, so we want every penny to stay with the hotels,” he said.
For the week ending April 4, occupancy rates were an anemic 7% at hotels still open in Chicago’s central business district, according to the most recent data from hospital research company STR. Several hotels are being used in the fight against the coronavirus. The city has a deal with Hotel Essex, for example, to house first responders. Hotel Julian is accommodating people exposed to or mildly ill with COVID-19 who can’t safely be at home.
Buy Now, Stay Later’s $100 bonds are being sold on the site through August.
Customers click on a box that puts them in touch directly with the hotel they want. Each property sets its own terms regarding expiration, blackout dates and other conditions for redeeming the bonds, but the idea is to impose as few restrictions as possible.
The concept came from Rachel Harrison, co-founder of Lion & Lamb Communications, a hospitality public relations firm in New York.
“We originally started with our clients, with only five hotels,” Harrison said. “We didn’t know if it was going to work or if consumers would be interested. But on day one, one of our hotels emailed to thank us because they’d already sold five bonds.”
The site has since expanded to 20-plus properties, including resorts in the Caribbean and urban addresses in Paris and New York.
“It’s mostly the smaller, independently owned hotels that have jumped on it,” she said.
Having a limited selection of mostly boutique properties could be a problem when it comes to spreading the word about these types of offers and making a meaningful difference in hotels’ bottom lines, said Makarand Mody, assistant professor of marketing at the Boston University School of Hospitality Administration.
“Getting a wide customer reach may be challenging for participating hotels, since they are independent hotels coming together and doing this and not a large chain initiative,” Mody said. “This is not something that they can list on an Expedia or Booking.com, and that’s where a lot of customers will start with their travel planning.”
From a consumer standpoint, Mody questioned whether it’s wise to invest in anything upfront when you don’t know where hotel rates, which are dynamic and driven by demand, are headed down the line.
“I would much rather buy a room for a fixed price that I can use at any time in the future than a bond that is still dependent on the room rate at the time of booking,” he said.
But if demand is weak and hotel prices stay low for the foreseeable future, having a credit for a fixed dollar amount works in a consumer’s favor, said industry expert Reneta McCarthy.
“I like the fact that it’s cash value,” said McCarthy, senior lecturer at Cornell University’s School of Hotel Administration in Ithaca, N.Y. “If for some reason they start selling rooms for $65 a night, you’re fine because you have something worth $150 as opposed to a free night.”
A recent COVID-19 Travel Sentiment Study by market research firm Longwoods International suggests that people are intrigued by the “buy now, use later” concept, said Mody of Boston University. The report’s April 8 survey of 1,000 U.S. adults found that 49% were interested in deals and offers for travel, dining and entertainment for future use.
“How many of those interested actually buy an offer like this ... that’s where I think the gap lies since there is so much uncertainty around right now,” Mody said.
Most hotels that can’t weather the storm will change hands as opposed to shutting down permanently, McCarthy said. The new owners likely would be contractually obligated to honor these credits, so these vouchers and bonds shouldn’t go to waste unless consumers let them.
“The person who’s buying these is taking on some risk, and that’s that they won’t use them,” she said. “I just found a whole stack of unused gift cards in my car.”
\To give Hotel Credits buyers more peace of mind, Zaino von During said the policy of her company, Porter & Sail, is to fully refund people’s money if a hotel closes before the voucher’s expiration date.
“We know it’s a hard ask right now for consumers to be thinking about planning future travel,” she said. “But this is a way for them to solidify that they’re going to take that trip to Tulum without the commitment of dates. It taps into that wanderlust and that want to support the hotel community while recognizing that the entire landscape has changed.”