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Hotels in U.S. Take Severe Beating With Virus Hitting Travel

Hotels in U.S. Take Severe Beating With Virus Hitting Travel

(Bloomberg) -- Hotel managers can scrub counters and cancel breakfast buffets, but there’s not much they can do to make a panicked population travel.

Revenue per available room, a key industry metric known as RevPar, was down 12% from a year earlier during the week that ended March 7 as escalating concerns about the spread of a novel coronavirus pushed conference organizers and corporate managers to cancel trips.

Those fears have only increased in recent days as the number of virus cases increase across the U.S., further crimping demand for travel as companies hunker down and spring break travel plans get canceled.

Room revenue has been particularly bad in markets that cater to international travelers. RevPar was down 46% in San Francisco, 35% in Seattle and 20% in New York, according to STR data cited in a note from Robert W. Baird & Co.

“If you look at 9/11 or the Great Recession, we didn’t come close to the occupancy dip we’re getting from this one,” said Vijay Dandapani, chief executive officer of the Hotel Association of New York City. “It’s like a triple punch to the gut.”

Earlier this week, President Trump included the hotel industry among the businesses that would be included in a potential stimulus package designed to stunt the negative effects of the outbreak on the U.S. economy.

Hotel companies, from Hilton Worldwide Holdings Inc. to Host Hotels & Resorts Inc., have withdrawn financial forecasts. Owners and operators are racing to reduce operating costs while industry groups seek to reassure Americans that it’s still safe to travel, while also lobbying the federal government for support.

Meanwhile, things are still getting worse. Over the last few days, there’s been a sharp increase in the number of families asking about canceling spring break vacations, said Jack Ezon, managing partner of luxury travel agency Embark Beyond.

“One hundred percent of them are at least thinking about it,” he said.

On March 10, a group of 150 travel industry organizations, including the American Hotel & Lodging Association and the U.S. Travel Association, published a letter arguing that it’s still safe for most Americans to travel.

“While no one knows exactly how long this this public health situation will last, what we do know is that the impact to our industry is already significant,” said Brian Crawford, executive vice president of government affairs executive at AHLA. “We are asking the White House and Treasury to take immediate action to give small business owners access to capital and debt forbearance.”

The current crisis comes at the end of a long growth cycle for the hotel industry. Even with occupancy near record levels, new hotel openings and greater price transparency from online travel agencies had made it hard to increase rates.

Hotel companies have relaxed cancellation policies as the coronavirus spreads, especially for trips to and from countries where governments have restricted travel. Marriott International Inc. has waived all cancellation fees for travel to or from more than 20 countries affected by the virus, mostly in the Asia-Pacific region. The hotel giant has also amended loyalty-program rules so that members who live in China don’t lose perks because they have been unable to travel enough to earn status.

At hotel properties, the challenges are mounting. Managers are reducing costs by cutting amenities like executive lounges and room service, said Chad Crandell, CEO at asset manager CHMWarnick, which has more than 29,000 hotel rooms in its portfolio. Owners will also likely reduce labor costs by freezing new hires, limiting overtime, and letting go of part-time staff.

“This is just the beginning of the tidal wave,” said Crandell. “The bottom is falling out.”

To contact the reporter on this story: Patrick Clark in New York at pclark55@bloomberg.net

To contact the editors responsible for this story: Craig Giammona at cgiammona@bloomberg.net, Christine Maurus

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