As the 2019 fourth-quarter and full-year earnings reporting season continues, Hotel News Now will be monitoring earnings calls for talk from executives of public hotel companies on how the coronavirus (COVID-19) is affecting business.
Editor’s note: This story was updated on 5 March 2020 to include commentary from Ashford Hospitality Trust, Park Hotels & Resorts, Marriott International, InterContinental Hotels Group and Accor.
GLOBAL REPORT—The outbreak of the coronavirus (COVID-19) that originated in Wuhan, China, has led to the shutdown of cities and businesses, including hotels, as well as major travel disruption. What the impact might be on hotel company performance is just beginning to become evident, as executives share projections on earnings calls with analysts.
Read below what hotel company executives have said about the coronavirus on fourth-quarter and full-year earnings calls. HNN will update this article regularly throughout earnings season.
Wyndham Hotels & Resorts
“The coronavirus outbreak … is presenting a challenging start to 2020 for our committed and dedicated team in China,” Wyndham President and CEO Geoff Ballotti said on the company’s earnings call with analysts.
“While China represents only 2% of our adjusted (earnings before interest, taxes, depreciation and amortization) given our lower (revenue per available room), lower-royalty Super 8 master licensee arrangement, it is becoming a more important factor to our international direct franchising business.
“The 60 government mandated hotel closures we saw in the first week of the outbreak peaked last weekend at a 1,000 of our (hotels in) China. Approximately 900 of the 1,000 closures are Super 8 master licensee franchisees.
“Hotel closures appear to be stabilizing, and we’ve also seen approximately 50 hotels re-opened over the past several days. Importantly, the majority of the closures resulted from our owners and franchisees doing everything they could to protect their team members and prevent the spread of the virus.”
“The situation in China continues to unfold,” said Wyndham CFO Michele Allen. “To further expand on the geographical concentration we posted on our investor website, we are providing the following regional sensitivities. In China, a 100-basis-point change in net rooms or RevPAR growth equates to approximately $250,000 in adjusted EBITDA on a full-year basis. In Southeast Asia, a 100-basis-point change in net rooms or RevPAR growth equates to approximately $125,000, and in the U.S., for comparison purposes, a 100-basis-point change in net rooms of RevPAR growth equates to approximately $4 million.
“We’re providing these full-year sensitivities as a point of reference and to illustrate the relative and manageable magnitude of this issue in the context of our overall financial results. What we know today and can currently quantify is that approximately 70% of our hotels in China remain closed, with the balance experiencing occupancy declines of approximately 75%. We expect this to continue through at least the end of March.
“We also know that our hotels in Southeast Asia, particularly in Korea, Singapore and Thailand, are seeing varying degrees of occupancy declines. We are assuming that as hotels in China reopen, the market will remain soft for the vast majority of the year as occupancy recovers over a three-month to six-month period.
“Given what we know today, we would estimate a headwind of 200 basis points to 400 basis points on our full-year global RevPAR, a potential adverse impact of approximately $5 million to our first-quarter adjusted EBITDA and a potential adverse impact of approximately $8 million to $12 million to our full-year adjusted EBITDA.
“From a net rooms growth perspective, we are expecting the vast majority of our China room openings initially scheduled for the first quarter to slip to later into the year. As a result, we expect flat to negative room growth in China during the first quarter and for our first-quarter global net rooms growth to pace behind our full-year outlook. Should openings slip out of the year, we view the risk to net room growth as approximately half a point.”
MGM Resorts International
“We’re currently navigating an extremely fluid environment with the coronavirus, which we are taking very seriously,” said MGM Chairman and CEO Jim Murren on the company’s earnings call with analysts. The company also announced that he will be stepping down from his position.
“The safety of our employees and guests is our top priority, and we continue to work closely with the local authorities to ensure that we’re doing what’s right for the well-being of everyone there,” Murren said regarding his company’s response to the virus outbreak.
“As such, our Macau casinos and gaming areas are currently closed, so we are maintaining some non-gaming facilities to support our hotel guests. During this time with our casinos closed, we are actively managing our costs and are incurring approximately $1.5 million of operating expenses per day across both properties—the majority of which is payroll.
“While the current situation creates volatility in our business near-term, we are confident that does not reflect the medium to long-term earnings potential of these assets or the marketplace. In fact, while short-lived, we have been seeing signs of an improving marketplace during the first couple of weeks in January with our businesses averaging just under $2.5 million of property EBITDA a day.”
On a Q4 and full-year 2019 earnings call, Hilton President and CEO Chris Nassetta said the potential performance impact of the coronavirus in 2020 is estimated to be a 100-basis-point drag on comparable systemwide RevPAR growth, roughly a 0.5% reduction in net unit growth, and a $25-million to $50-million hit to full-year adjusted EBITDA. (HNN is a division of STR, a CoStar Group Company. Nassetta serves on CoStar Group’s Board of Directors.)
As of 11 February, Hilton had closed 150 hotels in China, totaling 33,000 rooms, due to the outbreak.
On the topic of the coronavirus outbreak, Wynn Resorts President and CEO Matt Maddox said during an earnings call with analysts on 6 February that the company’s main focus is on the health and safety of employees, customers and the community at large in Macau.
Forbes reports Wynn ceased operations of some guest facilities at its Wynn Macau and Wynn Palace properties on 7 February in response to the coronavirus outbreak and at the direction of Chinese officials in Macau. Other casinos in Macau were ordered by officials on 4 February to close for 15 days, The Wall Street Journal reports.
On the call with analysts, Maddox said his company is facing losses of $2.4 million to $2.6 million per day while its casino properties in Macau are closed.
“I’d like to commend the government of Macau and China … for the quick and decisive action that they take and continue to take to contain the coronavirus,” he said. “We’re in daily conversations with the government. It’s been extremely transparent and they have been terrific partners with us as we focus on the safety of everyone in Macau.”
Ashford Hospitality Trust
“We understand that many investors are focused on the coronavirus,” Ashford President and CEO Douglas Kessler said on a 26 February call with analysts to report fourth-quarter and full-year 2019 earnings. “Thus far, we calculate an approximate $550,000 impact to date. However, this number is increasing. If the virus is not contained, and travel patterns change, we would expect a greater impact on our operating performance. …
“Our international exposure in our portfolio is very limited. We’re mostly business transient, and we have very little group business as a percentage of our portfolio relative to some of our peers. Our market locations are diverse. Given that we don’t have heavy concentrations in some of the more international destinations within the U.S., we are a little bit insulated. Now that can all change if something becomes different in terms of the spread of it throughout the U.S., but specifically on the international front, I think we’re positioned reasonably well with respect to that. …
“Admittedly, what (losses we have calculated so far) were cancellations that specifically mentioned the coronavirus, but there may be other cancellations that occurred that didn’t specifically mention that. In terms of anything that we see, our view going forward … is really consistent with the industry RevPAR forecast and the increased cost structure. … We have been very aggressive in managing costs, trying to do a few things that are guest-facing and more things that can improve margins … (and) in light of the coronavirus, giving a little bit more attention to booking distributions and possibly being a little bit more aggressive on booking to backfill in the case cancellations increase.”
Park Hotels & Resorts
“As we turn to 2020, it’s hard not to ignore the heightened caution seen around the world as the coronavirus continues to dominate the headlines,” Park President and CEO Tom Baltimore Jr. said on the company’s 28 February earnings call. “With assets in global gateway cities, Park is not immune to the impact it is having on travel and group meetings. While it is still too early to quantify the ultimate impact on our business based on what we know today, we have assumed approximately 25 basis points of drag on RevPAR or $5 million of EBITDA in our 2020 guidance. We will continue to closely monitor the situation and reevaluate our approach, if necessary. However, for now, the playbook for Park does not change. …”
“As the virus emerged in Wuhan earlier this year, our teams assisted guests and provided support for associates, whose lives have been significantly disrupted,” Marriott President and CEO Arne Sorenson said on a 27 February call with analysts to report fourth-quarter and full-year earnings. “I couldn’t be prouder of our associates in the Asia/Pacific region, who have worked tirelessly.
“We continue to waive cancellation fees for hotel stays, through 15 March, for guests with reservations at our hotels in Greater China and for guests from Greater China with reservations at Marriott destinations globally.
“We began to see the impact of the coronavirus on our business in mid-January with occupancy declines gradually spreading from Wuhan to other markets in the Asia/Pacific region. In February, (revenue per available room) at our hotels in Greater China declined almost 90%, versus the same period last year.
“At the end of 2019, we had 375 properties with roughly 122,000 rooms across Greater China, representing 9% of our total global rooms. Around 90 of these properties are currently closed.
“In the Asia/Pacific region outside Greater China … February RevPAR declined roughly 25% year-over-year. For APAC, we had 412 properties with 100,000 rooms at year-end 2019, representing 7% of our total worldwide rooms.
“February RevPAR in the Asia/Pacific region overall has been running down around 50% compared to February of last year. Outbound travelers from China in 2019 made up less than 1% of room nights in our system outside of Asia/Pacific and around 0.5% of 1% of room nights in North America. …
“To date, apart from a handful of citywide event cancellations, we have not seen a significant impact on overall demand outside of the Asia-Pacific region, so the situation obviously remains fluid.
“Given the uncertainty surrounding the length and severity of the coronavirus situation, we cannot fully estimate the financial impact to our business at this time. So, in our press release and our remarks today, we are providing a base case first quarter and full year 2020 outlook that do not reflect any impact from the outbreak. …
“It’s too soon to put much stock in this effort to reopen China because it’s early and you still have schools closed and we don’t really know exactly how this is going to come back. But there is at least some hope, I suppose, that we’ve bottomed in China and maybe things will get a little bit better. You move around the rest of Asia-Pacific and you see some things that you would expect. …
“On business interruption insurance … the right assumption here is that there will be relatively few policies that are implicated by the coronavirus. We’ll obviously watch that and make sure we study it. But my guess is neither the owners nor Marriott are going to see substantial business interruption proceeds from this.”
InterContinental Hotels Group
“Of (InterContinental Hotels Group’s) 470 hotels in the Greater China area, 160 are closed or partially closed. … (Greater China) is an important part of our strategy, but it has only 15% of our open rooms and contributes 10% of our operations. … (But) we’re already seeing the effects of coronavirus as of late January,” IHG President and CEO Keith Barr said on an earnings call on 18 February.
“There is some impact across Asia/Pacific, some cancellations, but it is too hard to quantify as business is picking up and moving around the world. … I lived in the region during the 2019 H1N1 swine flu virus, and then we saw a sharp drop and then a sharp recovery.”
“Eighty percent of our people, we have asked them to stay at home (due to the coronavirus outbreak), not physically working at the hotels. … We have closed a lot of hotels, but the impact from all of this is €5 million ($5.4 million) reduction in lack of revenues,” said Sébastien Bazin, CEO of Accor on the company’s 20 February earnings call with analysts.
“Approximately 200 of Accor’s 370 hotels in China are closed or partially closed. … We’ll have more info in 20, 30 days. There have been cancellations but also re-bookings. The Chinese authorities are doing one hell of a job, and (the industry is) blessed with long-term growth in demand.”