Hotels are betting on staycations to survive Covid-19 pandemic | Travel - Hindustan Times
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Hotels are betting on staycations to survive Covid-19 pandemic

Delhi | ByBloomberg | Posted by Saumya Sharma
Jun 13, 2020 03:02 PM IST

How do you take a break during the summer of pandemic?  You avoid mass transit. You certainly don’t fly. You stay close to home. In other words, you go to a hotel.

The global hotel industry is pinning its survival on the staycation. Millions of them.

The global hotel industry is pinning its survival on the staycation. (Representational Image)(Unsplash)
The global hotel industry is pinning its survival on the staycation. (Representational Image)(Unsplash)

From Asia to Europe to America, people have been cooped up for months. Now, as lockdowns loosen, the shellshocked are emerging. Those with means desperately want to get away, but fear of the coronavirus remains very real.

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So how do you take a break during the summer of pandemic?  You avoid mass transit. You certainly don’t fly. You stay close to home. In other words, you go to a hotel. The American Hotel and Lodging Association said that pre-pandemic, there were 1.1 billion guest nights in the U.S. annually. Now, the industry will be lucky to hit half that—early June numbers are down 50%. With business and air travel barely breathing, hotel companies are betting on the staycation as a short-term strategy for survival. 

From two-day weekends to full-week respites, leisure travelers are headed out on the highway, driving for as long as 5 hours in search of room service and waterfall showers. The experience of hotels in Asia has provided a roadmap for those in Europe and America. During China’s May Day holiday, for example, occupancies topped 50% following months during which it was as low as 10%.

“Everyone saw a huge bounce, which was great,” said Michelle Woodley, president of Preferred Hotels and Resorts, which has 180 properties in the Asia Pacific region (out of 750 worldwide). “We actually had a hotel in Chengdu, the Wanda Reign, that was at 100% for two days. The holiday just solidified for us that when people have the opportunity, they will still travel close by.” 

Analysts agreed that staycationers—often family and leisure travelers similar to timeshare fans—can boost U.S. and European hotel occupancies from April’s dismal 25% rates. In the U.S. last month, Memorial Day weekend occupancy only reached 36%, though there were a few bright spots: New York City, Virginia Beach, Virginia, Tampa, Florida, and Phoenix surpassed 40%, according to hospitality data company STR. In 2019, average U.S. occupancy was 66%, according to the hospitality consulting firm HVS.

“Everyone believes leisure will pick back up before corporate” guests, said Jennie Blumenthal, who heads the U.S. travel, transportation and hospitality practice at PwC. At 35%, many hotels can break even, though high-end venues need at least 50% occupancy to turn a profit.

The broader hotel market has long been dominated by business travelers and conferences. Before Covid-19 struck, half of all Preferred Hotels guests were corporate travelers, while leisure guests made up between 20% and 30%. Now, companies that banned corporate travel because of the coronavirus are rethinking corporate travel going forward. This is bad news for the hotel industry.

Shannon Knapp, chief executive of Leading Hotels of the World, said 85% of the luxury resort chain’s 400 hotels were closed until recently. Now, the company is seeing some upward momentum. “Spain, Italy, U.K. and France are talking about lifting some of the stay-at-home restrictions,” she said. Some 30% of her locations are currently open; 70% will be open by the end of summer, she said. 

Many hotels are reporting strong July and August bookings, with the caveat that a second Covid-19 wave could cause mass cancellations. There’s been a recent spike in Florida and Georgia beach hotel bookings, too, where medical professionals have warned that “reopening” was premature. Unsurprisingly, Covid-19 cases in both states are rising. 

Deborah Friedland, managing director and hospitality group director at EisnerAmper, said she’s doubtful staycations will be sufficient to keep many U.S. hotel companies afloat. She also poured water on industry hopes of a second half recovery.

“When you see a vaccine, then you’ll really see the recovery,” she said. “It’s difficult to look at other regions and draw similarities, when other governments have different freedoms, and recovery is really dependent on sticking to certain rules and requirements, such as social distancing and self-quarantine.”

European hotels are still grappling with border travel restrictions that eliminate millions of potential customers, and while Chinese hotels are filling up, venues in other Asian countries are struggling, she said: Singapore’s hospitality sector, for example, has been a roller coaster of bookings and closings.

The vultures are already circling. Acquisitions, lending and new development are essentially frozen, while many hotels are propped up by temporary loan forbearances. “I’m seeing a lot of distressed funds forming,” said Friedland. An April report from HVS expects many current hotel owners to hold on through the year, but they may be forced to sell next year to buyers who will maintain the properties until cash flows improve—and then sell or refinance.

“We’re not yet seeing the massive distress that I expect to see once the lenders collect on loans,” she said. “Right now, we’re in the honeymoon stage.”

Hotels most likely to survive are high-luxury, fuelled by wealthy travellers who in the past have returned swiftly after a crisis, or economy hotels with low overhead and snug footprints. Extended stay properties with in-room kitchens may also do well, attracting travellers seeking isolation. Economy hotels are running more than double the occupancy of luxury hotels, according to industry experts.

Properties centered on spas, pools and restaurants will struggle more, as will fly-to locations like those in the Caribbean or Hawaii, and those dependent on conferences or events. Many of these locations are opting to keep their doors closed for now.

“Hotels exist in a very thin band of profitability, and don’t necessarily make money by opening,” said Christopher Payne, head of the hospitality practice at law firm Ballard Spahr. “How do you halfway-open a luxury hotel filled with amenities, but without the restaurants or weddings?”

Crystal Springs Resort, a 4,000-acre golf course property in Hamburg, New Jersey, is navigating these questions by transforming from a spa- and restaurant-heavy destination into an experiential resort.

Chief Operating Officer Robby Younes said he has doubled outdoor guest activities, ranging from golf courses, fly fishing and hiking to “goat yoga” and outdoor cooking classes. Staffers are now trained in sanitizing equipment, and guests can bypass check-in, heading straight to assigned parking spots.

“Ninety percent of our rooms have a full kitchen and a dining room,” said Younes. “So our chefs are creating a seven-day menu they will drop off, or we can fill your fridge with all your necessities.” The hotel is reopening this month.

A recent PwC survey shows that safety and competence are top of mind for customers. Friedland said this will be the death knell for Airbnb, as customers will opt for the perceived safety of large brands; Payne meanwhile sees trouble for mid-market hotels. “Think of how hotels change over,” he said. “You leave at 11 a.m., and there’s somebody new at 2 p.m. And customers are going to be thinking, ‘Who was here 3 hours ago?’

“Now customers are going to want to know a little bit more—how did my luggage get to my room?” said Woodley. “The back of the house is now becoming the front of the house. So we’re going to have to start unveiling more than we previously did so that the guest feels safe.”

(This story has been published from a wire agency feed without modifications to the text. Only the headline has been changed.)

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