2021 COVID-19 Pandemic Impact Update for the Hospitality Industry by Grey Hospitality

Remember this grim tale….

The lodging industry is estimated to report a 50 percent, nearly $125 billion-dollar loss in 2020 making this year the worst year in history for the hotel industry, just the hotels and not travel overall. Oxford also reported that this will equate to a total loss of $910 billion in travel related economic output in 2020. This is seven times the impact of 9/11. Will your hotel or favorite destination close? Odds are it will.

The back page of the Hotel Business September 15^th2020 edition magazine reported that “travel supports 15.8 million American jobs in total, employing 1 out of 10 Americans. 2019 travel generated $2.6 trillion for the U.S economy. The local impact is 70 percent to local communities (in traveler related spending) in transportation, food and beverage (retail). The failure of our (Nations) hotels can (and will) have a massive ripple effect on our country’s economy.” This is our new reality and needs to make headlines not the back page. Please share and encourage Congress to support the industry, before it’s too late.

In review…there is no doubt that March and April of 2020 presented some of the toughest times for the hospitality industry- EVER- affecting hotels, restaurants, OTA’s, travel consortia, airlines and cruise lines. Hit hard by the COVID-19 pandemic, the industry has been knocked down, but not out. Todays outlook is still grim as winter approaches despite travel peaks in many markets in the summer. The worst is still to come, unfortunately.

Fast Forward to today April 30^th, 2021

“The Hospitality Asset Managers Association (“HAMA”) today released the results of its bi-annual survey of asset managers’ thoughts, experiences and forecasts for the upcoming year as the hotel industry continues to deal with the on-going pandemic.” There were more than 100 participants involved in the survey.   “Based on our findings, while there is obvious optimism about a much quicker than expected recovery, a meaningful percentage of hoteliers still are working towards solutions.  We are confident that better times are not too far ahead.  Whether or not individual owners and properties will continue to survive and hopefully thrive remains to be seen.’” Said the HAMA President.

HAMA Survey findings show that:

• Nearly 30 percent of respondents are contemplating brand or management changes as part of their recovery strategy, approximately five percent believed they would change brands, ten percent foresaw changing management companies and roughly 15 percent believe they would change both.
• Approximately 15 percent of participants expected to either hand back keys to the lender or enter into a forced sale situation.  Nearly 10 percent already had.
• Most HAMA members (50 percent) believe RevPAR will return to 2019 levels by 2023.  Not quite ten percent believe it will occur as early as 2022, while approximately 37 percent believed it would happen in 2024.  Predictions for 2025 and 2026 came in at three and one percent, respectively.
• The three factors most concerning to participants right now include labor availability (75 percent), demand (60 percent) and labor costs (55 percent).
• On average, in urban markets for full-service and luxury properties, nearly 45 percent of those surveyed anticipated acquisition price discounts of 11 to 20 percent. While one respondent believed discounts could reach 41 percent or more off pre-pandemic pricing, approximately 15 percent felt discounts would be as low as zero to eleven percent.”

 HAMA members are involved in asset management, acquisition, financing and disposition of hotels and resorts and are directly responsible for making decisions concerning capital investments, renovations, asset repositioning, operational policies and management selection.  Its U.S. members represent more than 3,500 hotels and resorts across every major brand, accounting for 775,000 hotel rooms, 250,000 employees, $40 billion in annual revenue and $3 billion in capital expenditures.  The organization boasts an additional 245 international affiliate members, as well.

Grey Hospitality believes troubled assets will become readily available throughout this year with the lack of travel in the corporate and group segments. Leisure travel this summer will not sustain the total U.S inventory of supply and that coupled with no global tourism impact- the industry will continue to suffer.

Global Impact to the Travel Industry

The following quick review of Global Tourism:

• The World Travel and Tourism Council (WT&TC) has warned the COVID-19 pandemic will impact nearly 50 million jobs worldwide in the travel and tourism industry. (with Asia impacted the worst at 30 million lost jobs) and more than 20 million in the US.
• Over 40 airlines around the world temporarily grounding their entire fleets, and many major carriers canceling more than 90 percent of scheduled flights
• The TSA reported 95 percent reduction in US Travel in early April and still today fluctuate almost weekly as virus cases are reported.
• Once the outbreak is over, it could take up to 12 months for the industry to recover (changing weekly by STR)
• In late March, the International Air Transport Association estimated lost revenue from the coronavirus will exceed $250 billion in 2020 and urged governments to offer immediate financial support to the industry
• The tourism industry currently accounts for 10% of global GDP

The coronavirus epidemic is expected to affect up to 50 million jobs in the global travel and tourism sector COVID-19 considerations from early in 2020, staggering numbers of temporary hotel closures followed in the wake of COVID-19’s spread. Some closures were government mandated, while others were voluntary and a result of drastically reduced demand or safety considerations.

Airlines

The transport association said today’s crisis is far worse and more widespread than after 9/11, when U.S. airlines lost approximately $19.6 billion in revenue in 2001-2002. After the terrorist attacks, the U.S. government provided $15 billion to airlines in compensation and loan guarantees.

Hotels

No travel, no occupancy, no meals- is where we started in March/April. Today this is no longer the absolute truth and is more market and segment driven. The hospitality industry is changing almost weekly, now for the better, in both expectations of travelers and the offerings available at facilities.  According to the American Hotel & Lodging Industry State of the Hotel Industry Analysis dated August 31^st 2020 nearly 5 out of 10 employees are still not working and the industry sector is down 4.3 million jobs; 65 percent of remain at or below 55 percent occupancy; only 33 percent of Americans say they have traveled overnight for leisure or vacation since March of 2020 and only 38 percent say they are likely to travel by the end of the year. Labor to reopen larger hotels and the amenities will be the struggle for many properties do to the unemployment challenges facing the U.S. work force.

City center major U.S urban markets are hit the hardest based on occupancy levels mostly in the 30 percent range due to lack of group and meetings travel, extremely weak corporate segment, government travel restrictions, civil unrest, and general anxiety due to social and pandemic publicity and media.

As a result of the COVID-19 pandemic and, more directly, the global ban on travel and rapidly expanding social distancing requirements, travel limitations and the governmental National and State stay-home orders brought travel to a halt at a time when spring break was upon the U.S in early 2020. Spring break for 2021 showed pent up demand and the resurgence of travel in many southern and popular destination markets with Tampa Florida leading the charge at or near 77 percent occupancy.

As an attempt to offer a level of normality at a time of crisis, most full-service restaurants are continuing to operate at small fractions of capacity including increased delivery and curb side pickup of food, beverage and alcoholic concoctions.

Economy and Midscale hotels continue to support the industry. Grey Hospitality has been participating with STR and tracking the weekly effect of the global pandemic and its impact on the industry and is reported in detail later in this report.

According to Oxford Economics, a leader in global forecasting and quantitative analysis, “the lodging industry is estimated to report a 50 percent, nearly $125 billion-dollar loss in 2020 making this year the worst year in history for the hotel industry, just the hotels and not travel overall. Oxford also reported that this will equate to a total loss of $910 billion in travel related economic output in 2020. This is seven times the impact of 9/11.” https://www.hotelbusiness.com/

Monthly Trend in U.S Performance

As for the state of the industry many hoteliers and consultants turn to STR for monthly performance trends and signs of national recovery. The following information has been released by STR and documents the industry recovery monthly over the pandemic. https://str.com/data-insights/news/press-releases

Before reporting on market occupancies, more not so great news. Currently STR is measuring occupancy in two formats- the traditional way being tracing realized demand against market supply and excludes temporarily closed rom that could not be booked. STR reported “This metric does not measure the total potential occupancy of a market, that is, the number of rooms demanded as a percentage of the total number of rooms existing in a market. For this metric, STR introduced Total-Room-Inventory methodology. This methodology takes realized demand and divides it by the total number of rooms in a market regardless of operational status (a.k.a. total room inventory). Until all temporarily closed properties in a market have reopened, TRI occupancy will be less than occupancy, because its base (supply) is bigger. The size of the delta between these two occupancy measures can indicate the amount of hotel closures in a market as well as help assess market recovery.”

In many markets, especially in major U.S. markets the TRI can be a discount of up to 20+ percentage points or more. STR reported occupancy in New York for example over the first 3 weeks of the month to be at 53.1,52.2 and 55.2 percent while the realized actual occupancy based on close inventory or TRI was 34.0, 33.6, 35.1 percent respectively. This demand impact is devastating for many markets in the country.

Monthly Trend in Market Supply Occupancy

March 2021:

• Occupancy: 54.6 percent
• ADR: $106.08
• RevPAR: $57.87

“Occupancy and RevPAR were the highest for any month since February 2020, while ADR was the highest since March 2020. While year-over-year percentage changes show significant increases because of comparison with a pandemic-affected period in 2020, the country’s performance levels remained well below the pre-pandemic comparable of March 2019: occupancy (-20.0 percent), ADR (-19.7 percent) and RevPAR (-35.8 percent). To track recovery, STR has launched a Market Recovery Monitor to index performance against the 2019 benchmark.

While we are overjoyed to see U.S. demand and occupancy growing and reaching new pandemic-era highs, we must keep in mind that there are 580 hotels with 154,000 rooms still temporarily closed.

Among the Top 25 Markets, Tampa experienced the highest occupancy level (77.1 percent), which was 12.2 percent below the market’s benchmark from 2019. The next highest occupancy level was in Miami (72.7 percent), which recorded the highest ADR ($248.26) and RevPAR ($180.36) levels. Miami’s ADR level was just 1.9 percent lower than the pre-pandemic comparable.

Markets with the lowest occupancy for the month included Boston 35.7 percent and Minneapolis 36.1 percent. Overall, the Top 25 Markets showed lower occupancy but higher ADR than all other markets.”

February 2021 (percentage change from February 2020):

• Occupancy: 45.3 percent (-26.6 percent)
• ADR: $98.31 (-24.8 percent)
• RevPAR: $44.57 (-44.8 percent)

Occupancy and RevPAR were the highest for any month since October 2020, while ADR was the highest since September 2020.

Among the Top 25 Markets, Oahu Island reported the lowest February occupancy level (29.3 percent), which represented a 65.9 percent decrease in year-over-year comparisons.

January 2021 (percentage change from January 2020):

• Occupancy: 39.3 percent (-28.3 percent)
• ADR: $90.79 (-27.8 percent)
• RevPAR: $35.72 (-48.2 percent)

Occupancy and RevPAR were up from December but remained closer to the earlier months of the pandemic. ADR was down slightly from the previous month.

Among the Top 25 Markets, Oahu Island, Hawaii, reported the lowest January occupancy level (23.6 percent), which represented a 72.9 percent decrease in year-over-year comparisons.

Miami, Florida, reported the highest occupancy level (54.5 percent), which was down 32.3 percent year over year. The market also showed the highest ADR (US$195.08), which represented a 25.5 percent decline year over year. The next highest occupancy levels were seen in Tampa, Florida (54.2 percent), and Phoenix, Arizona (49.3 percent). In addition to Miami, six other markets posted ADR above US$100.

December 2020 (percentage change from December 2019):

• Occupancy: 36.7 percent (-32.3 percent)
• ADR: $91.96 (-27.6 percent)
• RevPAR: US$33.76 (-51.0 percent)

Occupancy and RevPAR were the lowest since May, while ADR was up slightly from the previous month.

Among the Top 25 Markets, Oahu Island, Hawaii, reported the lowest December occupancy level (23.6 percent), which represented a 71.6 percent decrease in year-over-year comparisons.

Miami/Hialeah, Florida, reported the highest occupancy level (48.8 percent), which was down 37.6 percent year over year. The market also showed the highest ADR ($187.01), which represented a 26.1 percent decline year over year. The next highest occupancy levels were seen in Tampa/St. Petersburg, Florida (48.4 percent), and Atlanta, Georgia (45.3 percent).

November 2020 (percentage change from November 2019):

• Occupancy: 40.3 percent (-34.5 percent)
• ADR: $90.92 (-27.7 percent)
• RevPAR: $36.67 (-52.6 percent)

Each of the three key performance metrics declined from the previous month.

Among the Top 25 Markets, Oahu Island, Hawaii, reported the lowest November occupancy level (22.6 percent), which represented a 72.4 percent decline in year-over-year comparisons. The market showed the highest ADR ($167.49), however, which was down 26.7 percent.

October 2020 (percentage change from October 2019):

• Occupancy: 48.3 percent (-30.1 percent)
• ADR: $97.61 (-26.8 percent)
• RevPAR: $47.13 (-48.8 percent)

Occupancy remained flat from the previous month, while the ADR and RevPAR levels came in lower than September.  More recently, November weekly data showed that occupancy reached its lowest level since the week of June 14-20.

September 2020 and Q3- Actual Results STR

The U.S. hotel & lodging industry reported its lowest third-quarter occupancy level on record, according to Q3 2020 data from STR. Occupancy for the quarter was 48 percent, down 32.2 percent from the same quarter in 2019. Average daily rate was $101.25 (down 24.1 percent) and revenue per available room was $48.58 (down 48.5 percent).

September 2020 reported (percentage change from September 2019):

• Occupancy: 48.3 percent (-28.2 percent)
• ADR: $99.12 (-24.9 percent)
• RevPAR: $47.87 (-46.1 percent)

Each of the three key performance indicators came in lower than August. The absolute levels recorded in August were the highest for any month since April. More recently, October weekly data showed that occupancy reached 50 percent for just the second time since the industry’s low point.

Summer Review STR

Summer 2020 was already off to a good start in June, when occupancy reached 42.2 percent, up from 33.1 percent the month prior. Occupancy stayed well above the 40 percent level throughout the summer months, with August producing the highest occupancy since the start of the pandemic at 48.6%. That rate held through September at 48.3 percent.

ADR and RevPAR followed suit, with both metrics reaching the highest absolute levels in August, at $102.64 and $49.91, respectively. Each month between April and July, the year-over-year RevPAR percent change improved by 10 percentage points, however between July and September,

While the above data is for open hotels only, it is important to note that Total-Room-Inventory occupancy (which excludes temporary closures due to the pandemic) did not differ by much from the standard occupancy during September. Standard occupancy stood at 48.3 percent, while occupancy was 46.4 percent – a difference of 4.0 percent.

August 2020- Actual Results STR

The U.S. hotel industry’s metrics improved slightly in August from the previous month, according to the latest data from STR. Compared to August 2019, occupancy was down 31.7 percent to 48.6 percent, average daily rate was down 22.8 percent to $102.46 and revenue per available room was down 47.3 percent to $49.83.

The absolute occupancy level was the lowest for any August on record in the U.S., but all three key performance metrics were up from July levels. Recent September weekly data shows occupancy just below 50 percent due to a slight decrease in demand. Among the top 25 markets, Oahu Island in

Hawaii experienced the steepest drop in occupancy, down 69.9 percent to 26.8 percent, and the largest decrease in RevPAR—down 81.4 percent to $42.13. San Francisco/San Mateo in California posted the steepest decline in ADR, down 50.1 percent to $123.23.

July 2020- Actual Results STR

In a year-over-year comparison with July 2019, the industry reported GOPPAR was down 93.3 percent to $5.74; total revenue per available room was down 74.1 percent to $60.04; earnings before interest, taxes, depreciation and amortization were down 115.1 percent to -$9.24; and labor costs were down 64.8 percent to $28.46.

“As the industry inched closer to 50 percent occupancy, we saw continued incremental improvement in the subsequent profitability metrics,” said Raquel Ortiz, STR’s assistant director of financial performance. “We are, of course, nowhere near pre-pandemic levels, but there were additional encouraging signs in positive GOPPAR for full-service hotels and six major markets.”

June 2020- Actual Results STR

Due to the impact of the COVID-19 pandemic, the U.S. hotel industry showed slightly higher performance in June 2020, according to data from STR. This is likely to diminish in July with the resurgence of cases nationally and in key travel markets.

In a year-over-year comparison with June 2019, the industry recorded the following:

• Occupancy: decreased by -42.5 percent to 42.2 percent overall
• Average daily rate (ADR): decreased by -31.5 percent to US $92.15
• Revenue per available room (RevPAR): decreased by -60.6 percent to US $38.88

The occupancy and RevPAR levels reported in June of 2020 were the lowest reported results of any June on record according to STR.

May 2020- Actual Results STR

Due to the impact of the COVID-19 pandemic, the U.S. hotel industry showed continued lower performance during May 2020, according to data from STR.

In a year-over-year comparison with May 2019, the industry recorded the following:

• Occupancy: decreased by -51.7 percent to 33.1 percent overall
• ADR: decreased by -39.9 percent to $79.57
• RevPAR: decreased by -71.0 percent to  $26.35

The absolute occupancy and RevPAR levels were the lowest for any May on record in the U.S., but all three key performance metrics were up from April levels. Recent weekly data shows occupancy above 40 percent due to a slow and steady rise in demand.

April 2020- Actual Results STR

U.S. hotel gross operating profit per available room fell 116.9% during April 2020, according to the latest monthly P&L data release from STR.

In a year-over-year comparison with April 2019, the industry reported the following:

• GOP Per Available Room: -116.9 percent to -$17.98
• Total RevPAR: -92.9 percent to $17.39
• EBIDTA PAR: -140.2 percent to -$32.30
• LPAR (Labor Costs): -72.8 percent to $20.80

“Whereas only the later portion of March was affected, April was the country’s first full month in the COVID-19 world, and the impact on U.S. hotel profitability was historic,” said Joseph Rael, STR’s senior director of financial performance. “occupancy levels hit the floor near the middle of the month, leaving many properties positioned to lose money by keeping their doors open. That led to more than 5,100 temporary closures around the country.”

Among top markets, Houston reported the steepest year-over-year GOPPAR decline (-135.3 percent), followed by Chicago (-134.6 percent) and San Francisco/San Mateo (-133.6 percent).

March 2020- Actual Results STR

In a year-over-year comparison with March 2019, the industry posted the following:

• Occupancy: -42.3 percent to 39.4 percent
• ADR: -16.5 percent to $110.66
• RevPAR: -51.9% to $43.54

Among the Top 25 Markets, San Francisco/San Mateo, California, experienced the steepest drop in occupancy (-62.2 percent to 30.2 percent), which resulted in the largest decrease in RevPAR (-72.3 percent to $55.42). The market also posted one of the largest declines in ADR (-26.6 percent to $183.68).

New Orleans, Louisiana, matched for the other steepest decrease in ADR (-26.6 percent to $134.98).

Past Demand Crisis Impact – Overview:

STR has tracked data for the last 30 years and reports the impact of recent economic disruptions and the effect to the lodging industry.

2001- 2002 Recession from 9/11 there was a noted decline in RevPAR by an alarming 10 percent

2008 -The period of 2008-09 reported RevPAR down by 16.8 percent.

2002 – The 2002 SARS outbreak reported occupancy rate decline by a 26 percent in a comparison between the April-June quarter in 2002 and 2003.

The recession periods resulted in a slump in the consumer spending and leisure travels took the hardest hit. In addition, with increased number of furlough’s, nearly no unnecessary business travel was realized.

Outlook for Lodging

STR Current National Forecast:

Hotel occupancy for 2021 is forecast at roughly 75.9 percent of 2019 levels; ADR is expected to reach 82.1 percent and RevPAR 60.7 percent of 2019 levels; given the pandemic impact and window of recovery. STR Hotel performance in 2021 is expected to be defined by two halves. Current conditions and then some acceleration in demand around the middle of the year if vaccine distribution progresses as planned and demand having pent up levels of frustration driven be leisure demand.

                        2020 Actual                2021 Forecast             2022 Forecast

Supply              -3.6                              +5.4                            +2.4

Demand           -35.7                            +18.0                          +25.2

Occupancy      -36.6                            +16.6                          +24.1

ADR                    -21.3                            +4.3                            +8.2

RevPAR              -50.1                            +21.6                          +34.2

As a benchmark in 2019 the U.S. hotels ran 66.1 percent occupancy, ADR $131, RevPAR $87.00. The industry reported in 2020 is occupancy at 44.0 percent, a drop of -33.4 percent, ADR $103, down -21.3 percent and $45.48 RevPAR, down -47.6 percent. Currently 2021 is forecasted at 55 percent occupancy (not taking into consideration property closures), ADR $110 and $57.00 RevPAR, a -30 percent change from 2019. Hotel occupancy for the 2020 year is forecast at roughly 75.9% of 2019 levels; ADR is expected to reach 82.1% and RevPAR 60.7% of 2019 levels.(Source: Hotel News Now & STR January 26^th, 2021)

Key Points

• Zero Base Travel Demand (new benchmark): STR defines this as when hotels and the industry have absolutely no demand in the U.S (business, leisure, or group); the lodging industry is still selling 1 million rooms a day and equates to approximately 21.6 percent occupancy. This has never been measured before the Covid-19 Pandemic. (Source: STR week ending April 9^th, 2020)
• In this time of social distancing and safer at home STR reported in early April of 2020 21.6 percent of hotel were still occupied.
• Market Class: those classifications of hotel performing the best or “less bad” (STR Quoted) were the Economy and Midscale segments at 20 to 30 percent, respectively.
• In March and April of 2020, the U.S. has experienced zero group demand across the country
• Early April 2020 STR reported that 12 percent of U.S. hotels (overall supply) were reported closed. This number is likely incorrect due to the fact owners and operators are not notifying STR of property closures and are encouraged to do so.
• Currently 2021 is forecasted at 55 percent occupancy, ADR $110 and $57.00 RevPAR, a -30 percent change from 2019. Hotel occupancy for the 2020 year is forecast at roughly 75.9% of 2019 levels; ADR is expected to reach 82.1% and RevPAR 60.7% of 2019 levels.
• 2022 is estimated at 61 percent and rates closer to $120.00.

Conclusion

Travel will again return but when and where is yet to be determined. Grey Hospitality and STR agree that first, and soon, the leisure traveler will return slowly. As summer results agree in many unique markets. This fall and the continued effects of social distancing and peak cold season, people will again begin to delay their exploration needs and likely pass on travel until summer of 2021. As travelers begin to travel it is likely they will stay local and in lesser populated destinations. We can agree that once popular destinations like New York City, Chicago, and San Francisco, historically top tourist destinations, will be very slow to recover given the Covid pandemic and social unrest. It is believed instead travelers will seek national parks, state parks, family resort homes or rental properties where family units are distanced from large groups as they did in the summer of 2020.

Some individuals believe that over the return to stabilization in the lodging industry we may see some consolidation amongst the hotel franchisees, especially amongst the branded products and the resilient unique properties will remain those unique and boutique hotels. We agree. If one desires to travel it will be for a reason and a memorable one.

Hotels will close, inevitably, and businesses and owners will be forced to take a hard look at any new or future investment they make; and they will be looking at ways to optimize cost, short cuts in hospitality will be a result and we hope it’s not a long-term strategy, discounted hospitality.

Overall, it is predicted that the world economy, despite taking a severe blow, will be back in a positive direction in a years’ time and will take around 3 years to completely overcome the losses the lodging industry, restaurant industry and the individual traveler accrued during this pandemic of 2020.

---

About the author

Sean Skellie of Grey Hospitality, a member of Cayuga Hospitality Consultants, offers strategic market analysis, operational planning services (Asset Management) and development consulting to communities, state agencies and developers in the hospitality arena. Our broad range of skills in both management and development experience enables us to quickly provide clients with a focus towards realistic expectations based on expanded services, actual operations, enhanced profitability and potential development considerations based on regional expertise. Whether our engagement involves developing strategic plans, conducting feasibility studies, implementing new services, or evaluating operations, our concern is to assist clients in providing high quality services that meet community needs as well as guest needs, generate new revenue, and contribute to the client’s continued strength, master plan and future growth.

Contact Us