Experts suggest the COVID-19 impact on U.S. hotels could include a 50.6% drop in revenue for 2020 — and property closures across the country.
It’s unknown just how long and widespread the effect of the current pandemic will be on the global economy, including the COVID-19 impact on U.S. hotels. In the short-term, large hotel brands like Marriott, Hilton and Hyatt are furloughing tens of thousands of workers as occupancy plunges and debt payments come due. At the same time, experts are weighing the long-term implications for late-2020 and beyond.
Travel research firm STR has already updated its projections for 2020 and 2021. Here’s a look at what they expect for the hotel industry in the coming months, plus information on how government programs may support the industry through the COVID-19 crisis.
A Huge Drop in Business for U.S. Hotels
STR predicts a 50.6% drop in revenue per available room (RevPAR) in 2020. That expected drop is unlike anything in STR’s database, which goes back to 1989. In 2009, at the height of the financial crisis, absolute occupancy fell to 54.6%. In 2020, STR expects absolute occupancy to fall to 37.9%.
Of course, expect a significant bounce back in 2021. It would be near impossible for these record-level lows to continue beyond this year. STR predicts a 63.1% increase in RevPAR for 2021 plus an absolute occupancy of 59.7%. That’s not a great occupancy number in a normal year, but COVID-19 has changed expectations.
Outlook: Covid-19 Impact On U.S. Hotels
|2020 Forecast||2021 Forecast|
|Occupancy||-42.6% (37.9%)||+57.3% (59.7%)|
|ADR||-13.9% ($112.91)||+3.7% ($117.05)|
|RevPAR||-50.6% ($42.84)||+63.1% ($69.86)|
The Likelihood of Property Closures
In February, STR tracked 55,734 hotels comprising 5,341,586 rooms in the United States. In the wake of COVID-19, STR expects a decrease of 14.9% in room nights available. That means property closures will lead to a loss of 14.9% of available rooms in the United States.
It’s no surprise that the United States would experience a disproportionate loss of hotel rooms due to COVID-19 compared to normal years. Few hospitality companies can absorb a drop in absolute occupancy to less than 40% and continue operation.
The only benefit to the loss of these hotel rooms is a reduction in supply to somewhat mirror the loss of demand. When the hospitality industry recovers, the properties that survive will be well-positioned to capitalize on the bounce back in demand.
Impact of Support From the U.S. Government
In late March, the United States passed the CARES Act, which provides $2 trillion in relief for individuals and businesses — including hotels. The Act set aside additional funds for Small Business Administration loans, but those funds were quickly exhausted — in some cases by businesses that did not need them.
In April, Congress passed a fresh bill aimed at small businesses and hospitals. This bill was expected to inject almost $500 billion in funds into the economy, propping up companies hurt by the COVID-19-related loss of business. Still, these bills aren’t a guaranteed lifeboat for all hotels. The CARES Act includes loan forgiveness for companies that rehire furloughed workers by June 30 — but the crisis will likely last much longer. Expect to see closures throughout 2020 and into 2021 as the economic impacts of the pandemic reverberate. An extended deadline for loan forgiveness, or an entirely new bill, will be needed.
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