COVID-19 Mid-April Hotel Owner’s Report 

Labor is the largest expense and by far the most important component to succeed in hospitality. Without great employees, we are just another hotel. Today, most workers remain furloughed. By now, most owners are in discussions with banks on potential forbearance agreements or Paycheck Protection Plan (PPP) or both. Some may even have their PPP checks in hand! CMBS loans have been difficult if not impossible to navigate but traditional lenders are more flexible.

Franchise companies have generally provided some breaks for franchisees and they vary by brand. Guests are cancelling May and June bookings so new business seldom keeps up with cancellations. For those owners who are over leveraged, this is a time for a possible sale, albeit not a good time to optimize a return on investment. After all, it will likely be a slow recovery, with some hotel locations coming back much faster than others based on price point, distance from heavily populated markets where driving is easy and much more. Then there is the new supply that is coming in. This can be overwhelming for some hotels and markets to recover.

The PPP money is coming in this week for those who applied but getting that money forgiven requires 75% of it to be used for payroll and there are likely going to be fairly strict guidelines for proving where the dollars went. Use a separate checking account for those funds and naturally, if you are able to delay those funds, it might be easier to meet the 75% test as some hotels are either closed or running 10% occupancy. It is hard to hire your staff back unless you have significant maintenance, cleaning or other work to provide them. To delay receipt of your funding, you will need to wait for the next round of funding as the first $349B is pretty much gone.

Silver Lining

According to MMGY’s Travel Pulse, 68% of consumers feel safe in their cars and 40% of consumers feel safe in parks. The report seems to indicate that this might produce a desire for outdoor travel. Business travelers show more signs of confidence in safety than leisure travelers in venues like hotels, air travel, rail and events, while 49% of travelers that are 50 to 64 years of age show the least concern for their safety than any other age group, according to the Travel Pulse survey.

The good news is that travelers are still looking into travel this summer and fall and early 2021. In the meantime, for those who can navigate these next two or three months, there are things to do that will greatly benefit operations when we get to the other side:

Preventive Maintenance

Deep cleaning, checking systems, reviewing all checklists and touching up paint, case goods, tubs and everything the guest sees in particular will be good for those who have had busy hotels where you could not get into rooms.

How to market to get to the other side

We all need to change our sales and marketing approach. Contacting hospitals and all health care providers is paramount. Don’t listen to the big companies who say “do not promote” during these times. Agree, it is bad to promote without a clear message that safety, sanitation and “doing the right thing” is of critical importance to you and your team. But there are many opportunities to contact senior housing, apartments, RV parks, transportation companies and many more and load up with online marketing. Content is King and only eclipsed by Cash is King today.

How to save to get to the other side

Negotiate better pricing for all your purchases, compare vendors, especially if your current vendor is not taking care of you during this very difficult period. Watch all expenses by closing wings, floors and all non-essential activities. Any supplier can be helpful in deferring expenses, cutting out some services and more. When staffing up occurs, now is a good time to rethink who we really need. I for one believe we need to flatten organizations, allowing the top management team more direct contact with our guests. This will bring them back and improve the poor training that has been occurring, largely because middle managers do not have the seasoning to train.

 

Conclusion

While this shock to the market has hit us hard, we were running out of time with this formerly-booming economy anyway. I had predicted a recession in Q1 of 2021 due to the length of the strong economy so now, rather than a mild but lengthy recession next year, we have a ridiculously deep, hopefully shorter recession caused by an external event – an event that was required if something was going to knock down this economy in an election year.

It is hard to predict how we will look from a RevPAR perspective this year, but STR (Jan Freitag has been doing a weekly podcast that is excellent) has been doing a great job of modeling RevPAR growth from Q1 2020 through the end of the year. If Q1 ended at about 30% below 2019, Q2 is projected to be down 80% and Q3 60% with some degree of normalization by Q4. To a safe and as quick as possible recovery!