Organizations who support the travel and hotel industry, and a hotelier himself, say modifications need to be made to the Paycheck Protection Program to help businesses in these sectors recover from the COVID-19 pandemic.
REPORT FROM THE U.S.—Organizations have come together to ask Congress to make changes to the Paycheck Protection Program to help hotels, destination marketing organizations and other small businesses endure the challenges brought on by the COVID-19 pandemic.
In a letter to Congress, several organizations have asked for modifications such as an extension of PPP from 30 June to 31 December, an extended cover period for loan forgiveness and changing the fixed date for rehiring (currently 30 June) to allow borrowers “16 weeks from the date the loan commences during which to eliminate any reductions to pre-crisis, full-time equivalent employees.”
The U.S. economy has lost 8 million travel-supported jobs as of 30 April, said Tori Barnes, VP of public affairs and policy at the U.S. Travel Association, during a call Thursday with news media to address the requested changes.
“Before COVID, the U.S. travel industry employed 15.8 million Americans, which was one in 10 jobs in the United States,” she said. “And U.S. travel spending is expected to drop more than half a trillion dollars this year.”
The PPP was a good idea but was intended to be used in the short term and needs to be modified to “give businesses and their workers a real chance to survive,” Barnes said.
The current structure of the PPP makes destination marketing organizations ineligible for loans through the program, which is an oversight “because local and regional travel economies are highly dependent on the work of DMOs,” she said.
“We’re really asking, in addition to what is included here, to expand the PPP eligibility, for expanded eligibility and help to nonprofits in addition to the other important proposals that are outlined in the letter that we signed,” Barnes said.
PPP coverage period
Brian Crawford, EVP of government affairs for the American Hotel & Lodging Association, said an extension is needed because “the hotel industry is not going to bounce back quickly.”
“We strongly believe that the coverage period date needs to be extended to the end of the year at the very least and potentially longer,” he said.
Under the current PPP structure, borrowers can take out loans that “amount to 2.5 times average monthly payroll costs alone, or $10 million, whichever is less,” the letter states. Crawford said this is not enough for hoteliers.
“For the average hotel, about 40% of your costs are payroll; 60% of your cost are for debt services, which includes your mortgage, your state and local real estate taxes, your insurance, utilities, those are all fixed costs you have to pay every month,” he said.
The industry was affected by the virus “before the CARES Act or PPP were ever even contemplated, so many employees were furloughed way before the laws were passed,” he said.
“The guidelines mandate that you have to use 75% of loan proceeds on payroll. That’s only allowing 25% of the proceeds to be used for your debt services,” he said.
The goal is to ensure hotels have their lights on and employees have a job to return to, Crawford added.
An example of a hotel hit hard by the pandemic
Doug Dreher, president and CEO of The Hotel Group, said he’s been in the industry for 40 years and has never experienced a crisis like this before.
Seattle was one of the first markets where hotels were negatively affected by the pandemic, Crawford said. Dreher’s company has a property in Bellevue just outside the city, the 254-room Hilton Garden Inn Seattle Bellevue Downtown, which started losing business once the first cases of COVID-19 were reported in the Seattle area and Amazon announced its travel ban.
“Literally everything started canceling. From groups to sports to conventions,” Dreher said. “Our Hilton Garden Inn in Bellevue subsequently went from the peak performance at 80% occupancy to single-digit occupancy in less than a week back in early March and has not even begun to recover.”
The hotel is now sitting at 2% occupancy and has “13 team members, managers and associates out of a peak of 80,” Dreher said.
The Hotel Group is glad its Bellevue property and other hotels have received PPP loans, but there are still “monumental challenges,” Dreher said.
“To put it into perspective, our monthly mortgage on the Hilton Garden Inn is $200,000, and for April while running 2% occupancy our total revenue, which pays all bills from payroll to maintenance to utilities to real estate taxes, insurance and the debt service, was only $20,000, just 10% of the mortgage payment. And that’s just one expense,” he said. “Clearly the math doesn’t work. And as the PPP program (works), only 25% of non-payroll expenses are covered. And they’re limited to interest expense, rent and utilities, which as you can see, it just isn’t going to work. If we’re unable to make our debt payments alone, or many other operating expenses, we may be unable to survive this crisis.”