The only thing certain in the hotel industry right now is uncertainty, but owners speaking during the recent AAHOA conference said they’re adjusting and seeing signs of hope.
REPORT FROM THE U.S.—When the COVID-19 pandemic first hit the U.S. in earnest in March, Ridgemont Hospitality CEO Sima Patel planned for a roughly three-month disruption. But the disruptions continue five months later.
“We thought ‘We’ll be out of this in 90 days,’” she said on the “Hotelier insights: Recovery and looking past the pandemic” session during the online Asian American Hotel Owners Association Convention.
“We planned according to that,” she added. “We started with RevPAR dropping by 85% (year-over-year) to now we are seeing about 59%, which is good. June actually showed some hope for recovery.”
Panelists agreed the summer months brought improved performance for hotels, but said it’s hard to get much clarity going forward, as the incorrect early assumptions highlight.
DJ Rama, president and CEO of Auro Hotels, said clarity and recovery will come from success in dealing with the pandemic—or the lack thereof.
“For the month of June, we finished at 31% occupancy, and the month of July we finished at 41% occupancy,” he said. “So I think suppression of the virus equals recovery. If we can’t get our arms around the suppression of the virus, the visibility gets darker and darker. We went back to review our fourth-quarter forecasts, and we’ve shaved off about 30% of revenue. It’s a bumpy road, but we are laser-focused on creating efficiency.”
Kenneth Fearn, founder and managing partner of Integrated Capital, said the biggest risk now is that hotels “won’t see a pickup in demand” in the latter part of 2020. His company relies heavily on group business and corporate transient in urban markets, which have been decimated by the coronavirus pandemic, he said.
He noted the bright spot for his company, and for many others, has been drive-to resort demand. For Integrated Capital, that specifically refers to a bounce back in Myrtle Beach.
“That has given us great hope for that market, because the American spirit is one where people want to get out of their homes and want to get back to a sense of normalcy,” he said. “It’s that fighting spirit that lets us get back to what we do.”
Justin Knight, president and CEO of Apple Hospitality REIT, said continued volatility and uncertainty still rank top among his top concerns, but his company has seen positive signs, including how the people within the industry have pulled through.
“In July, we anticipate we will be cash positive at the corporate level,” he said. “Really what has been the most eye-opening to me is that, historically we’ve always had a great appreciation for our on-site teams and management companies, but they’ve have proven that they are exceptional in their ability to adapt and to find ways to service guests.”
Readjusting development environment
Ownership groups have had to slow down development projects and pause transactions as the market readjusted to uncertainty.
Rama said he was pleased by how accommodating a bank was on delaying the opening for a property currently under construction and slated to open in October.
“I went to the bank and said, ‘Here’s my forecast and here’s my burn rate if we open this hotel,’” he said. “The bank was very amicable to say ‘let’s delay the opening.’ It’s worth paying the interest as opposed to opening and having that burn rate.”
At the onset of the crisis, Apple, which as a REIT only develops properties through a third-party entity, had six hotels under contract to purchase upon completion. Two of those closed in April with two more set to close “shortly,” Knight said, adding that one of the six has been cancelled.
He said his company has been leaning on partners through that process.
“We have had incredibly valuable conversations with the brands who provided guidance around how we should staff and bring people on in order to ensure that that we have a smooth transition while preserving capital through the opening, recognizing that there'll be slower ramp for some of these hotels,” he said.
Fearn agreed that working with the brands has been largely fruitful and the cleaning initiatives in particular have helped guests and employees feel more comfortable. However, he said, it’s still unclear how that will scale as demand returns.
“Where the test will be is (when occupancies increase) and where the pivot goes from there,” he said. “We’re not at that point yet, but I think that interesting discussions will start to really develop.”
Knight said it’s too early to draw conclusions about how most travelers will react to a new reality.
“The guests that are traveling now are not necessarily indicative of the guests that will travel in the future,” he said. “Guests traveling now tend to be less risk-averse than those who aren’t traveling now.”
Cutting to profitability
Rama said with a lack of clarity on how demand and revenue might grow, owners are increasingly left to rely on cutting costs to run profitable businesses.
Knight said rethinking the future of the hotel business model is a big part of his company’s focus.
“Our focus is really around those services and amenities, which are utilized least frequently, but that have significant costs associated with them,” he said.
He said significant operations changes will be needed both to reduce costs and to accommodate guests’ changing needs.
“We’re looking at things like housekeeping and how we might provide that differently in the future in order to offset some of the incremental costs associated with the new cleaning standards in order to ensure a safe environment for guests and employees,” he said.
Some changes might seem monumental from within the industry but will ultimately be accepted by travelers, Rama said.
“We are sitting across the aisle with our brands and saying, ‘What are the pieces that are critical and what are the pieces that are not critical?’” he said. “When you got to Europe, you can’t find a free breakfast, or it’s very challenging, but there are some brands (in the U.S.) where it’s a hallmark and part of the value proposition. We’re at this pivotal moment right now that we will have to challenge each other on brand standards and we will have to make some seismic change.”