Hotel chains shore up supply of cash to weather coronavirus storm
Several of the world's largest hotel chains just released their earnings reports for the first quarter of 2020, which spanned Jan. 1 to March 31, 2020 — and while the numbers paint a bleak picture of the industry, every company seemed confident they could emerge even stronger after the coronavirus pandemic subsides.
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Hilton, Hyatt and IHG shared their results last week, and Marriott was the last of the four major brands to report its results on Monday, May 11. In terms of raw numbers, nothing is surprising. As the virus that causes COVID-19 spread around the globe, hotels reported historically low occupancy rates and dramatic decreases in revenue per available room (RevPAR). The earnings calls have further confirmed those discouraging numbers. (It's important to note that, because much of the world didn't begin to go into lockdown until the middle of March, the Q1 results won't fully reflect the extent of the impact the novel coronavirus has had on the major hotel chains.)
Hilton reported a decline in RevPAR of 22.6%, though it did notch a (relatively) small profit of $18 million for the quarter that ended on March 31. Hyatt shared a RevPAR decrease of 28% across its network and a loss of $103 million, and IHG's RevPAR was down 25% for the quarter. Marriott, the world's largest hotel chain, reported a worldwide RevPAR decrease of 22.5%, and net income of $31 million for the first quarter, down from $375 million in the same quarter last year.
Again, these numbers don't factor in the full impact of the shutdown of travel globally, and each of the chains advised that their Q2 numbers would look worse. It's likely to be the worst quarter of the year.
Related: What your hotel stay will look like in a world after coronavirus
While seeing these dramatic declines is disheartening, each of the hotel chains noted that their priority has been to keep its employees and guests safe during this global health crisis.
They've worked swiftly to create and implement plans that would enhance their cleaning protocols to better provide a safe environment for everyone staying in and working at a given hotel. They've also worked to be accommodating to travelers by modifying change and cancellation policies, as well as extending elite status, free-night certificates, the life of points and more.
Steps have also been taken between the onset of the pandemic and today to ensure the brands not only survive, but come out stronger on the other side.
In all four earnings reports, each chain outlined tactics they've employed to ensure enough financial stability to weather the crisis and respond to the inevitable short-term changes in the industry. Hilton reported that it has shored up $3.8 billion in liquidity, IHG has "around $2 billion" on hand and Hyatt has $3.1 billion in liquidity, which it said was enough to allow the chain to operate for 30 months. Marriott said that it has raised cash through a number of methods, including issuing senior notes and making changes to its cobranded credit card agreements. It says it has roughly $3.9 billion in cash on hand.
While it's impossible to know at this point when we might see demand for hotel stays begin to recover, all three chains said it's largely a wait-and-see matter. Many of the countries that have been most affected by the coronavirus outbreak are only just beginning to emerge from lockdown, and many have borders that remain closed to foreigners.
Based on that information, these chains see the leisure side of travel returning first, with business travel following and group travel the last to come back. Hyatt specifically noted that it's predicting it will see its first rise in occupancies at properties that are easily accessible by car, as travelers who are eager for a change of scenery are more likely to travel by car than airplane. Marriott echoed Hyatt's sentiment, noting that hotels located in drive-to destinations -- specifically The Ritz-Carlton, Bacara in Santa Barbara, California and hotels across Hilton Head Island, South Carolina -- were expected to reach 50% occupancy. It's hopeful other destinations that are easily reachable by car, such as Chicago and San Antonio, Texas, will see upticks in bookings in the coming weeks as more people begin to emerge from lockdowns.
And in China and South Korea, chains have begun to see early signs of a recovery as concerns of second waves emerge in a few countries. According to Hyatt, there's been a significant uptick in bookings in South Korea, only one Hyatt property in mainland China remains closed -- down from a high of 26 -- and some hotels were even sold out in mainland China during a recent holiday weekend. Marriott said occupancy levels at its hotels in "Greater China" rose to 25% in April, up from lows of less than 10% in February.
It's no surprise that hotel chains have reported dismal numbers for the first quarter of this year -- and, unfortunately, it's likely to get worse for the next. Hotels have had to lay off or furlough thousands of workers, and hundreds of hotels remain shuttered or are operating at greatly reduced levels.
That reality is likely to persist until we've seen meaningful improvements, and the pandemic is squarely behind us.
Hotels, however, are focused on the future. They've used just about every tool at their disposal to amass as much cash as possible to weather this crisis and, ultimately, resume the ambitious growth plans they were pursuing before the world changed forever.