Unique summer season to test resiliency of hotels
 
Unique summer season to test resiliency of hotels
24 JUNE 2020 8:25 AM

Members of the Lodging Industry Investment Council told Hotel News Now they’re preparing for a season unlike any other in the hotel industry’s recent history.

REPORT FROM THE U.S.—The summer of 2020 will be one for the history books for the U.S. hotel industry, albeit for all the wrong reasons.

Speaking to Hotel News Now during a recent online meeting of the Lodging Industry Investment Council, Jonathan Bogatay, CEO of North Central Group, said the season is shaping up in different ways across the markets and regions in which his company operates, but there are some commonalities across the industry.

“Our business traffic is fairly nonexistent,” he said. “We’re surviving on leisure, and over 25% of our market mix is coming from OTAs. That’s the business that’s available to us today.”

The resilience of leisure demand has varied by region, but he said it’s remained relatively strong in Arizona.

“They’ve just chosen to ignore COVID-19. …. They’re just going out and saying, ‘Who needs a mask?’” he said. “So we’ve actually seen quite a bit of leisure travel (there) and the beginning green shoots of some corporate travel and interestingly a lot of people coming from California into the Phoenix valley even in the temperatures of May and June. The presale for July looks pretty good, mostly weekend-related.”

Bogatay said his hotels have rebooked much of the group business into 2021, but pricing is a challenge.

“We’ve gotten to the point where we feel it’s a win if they’ll take the same rate in 2021 as they committed to in 2020, but we do have a few exceptions where we’ve had to negotiate down,” he said.

Even when maintaining rate, North Central Group has had to offer groups greater flexibility on things like food-and-beverage minimums, Bogatay said. On the positive side, fewer groups want hotel-provided transportation, which he believes “will help a little bit on the margins going forward.”

Andrea Foster, SVP of development for Marcus Hotels & Resorts, said her company’s properties are seeing relatively strong leisure demand from the Chicago area, which she expects will be what drives them through the summer season.

“We’re finding that people are very tired of being quarantined,” she said. “Their kids are driving them crazy, and they need to get out. (Timber Ridge Lodge) has a waterpark, so there’s a lot of interest in that. We’re seeing that (demand) come back very strong, so we’re pleased to see that.”

Foster said business demand “is just not back yet” and likely won’t be for some time. Part of the issue, in addition to safety concerns around travel, is the relative lack of amenities.

“It’s harder to get people into a business-oriented hotel where there are minimal options for things like restaurants,” she said.

Urban markets in particular face a difficult road to a comeback, and that is largely where RLJ Lodging Trust’s portfolio lies, said Co-Chief Investment Officer Kate Henriksen.

The properties within RLJ’s portfolio that have outperformed have been extended-stay hotels or those in tertiary and suburban markets. Overall, even its urban properties are clawing their way back.

“We have 104 hotels, and we suspended 57 of them at the peak,” she said. “We’ve reopened about a dozen now and continue to evaluate and work through the reopening process on others.”

Those urban hotels have had to find alternative demand.

“We do have a lot of urban hotels open, but it’s been a combination of accommodating airline crews they had contracts with or some demand from nurses and doctors,” she said. “It’s really market-specific.”

She said RLJ is seeing no midweek corporate demand, and while leisure will carry through the summer, the question remains what will happen after that.

“In our view, the real test is going to come in September once kids go back to school, whatever that’s going to look like,” Henriksen said. “If the corporate traveler is going to feel comfortable if they dip their toes in the water traveling for leisure over the summer, are they going to feel comfortable coming back in September?”

David Duncan, president and CEO of First Hospitality, said the gauge for short-term success is simple.

“It’s (a good summer) if we’re generating positive cash flow,” he said. “I literally mean if there’s a plus sign in front of the number instead of a negative. Before it required a plus sign and six digits.”

To ensure that, his company has examined expenses weekly and with unprecedented “graininess,” he said.

He said each hotel went through a process in which it had to “justify why (it) should be open.”

Still the path going forward is incredibly uncertain, Duncan said.

“The reality is, from my operating perspective, it’s the lowest visibility into forward bookings that I’ve ever seen,” he said.

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