Article Summary:

In this roundup of comments made during first-quarter earnings calls, executives identify the segments and markets they believe will be among the first to recover for their hotel companies once the pandemic crisis begins to subside, and what that recovery will look like.

Primary Category: Earnings Recaps

Secondary Categories: Brands, Coronavirus, Management, News, Ownership

Editor’s note: This article was updated on 18 May 2020 with comments from Choice Hotels International and RLJ Lodging Trust.

GLOBAL REPORT—Reporting performance in the first quarter that most agree will only worsen in the second, hotel company executives pinned their hopes on the promise that this difficult period for the industry will eventually pass.

Just when and exactly how that relief will begin to be felt is different for each company, and often different across that company’s portfolio based on market, segment and other factors.

A common perception among hoteliers is that hotels in markets with high drive-to-leisure demand are likely to be the first to book again into double-digit occupancies—and that was the reality for some companies already in Q1.

On conference calls with analysts to discuss Q1 earnings and projections for the full year, though murky at best, hotel executives laid out what the road to recovery looks like for their companies.

Sébastien Bazin, president and CEO, Accor
“When you do not have the revenue, you have to cut costs, there is no other way. Prepare for the rebound and design for it. Be an actor and not a spectator. …

“What we cannot see is how many owners will not reopen. … They might not have the means or the will, but under no circumstances will we inject capital into those hotels. We are asset-light.”

Pat Pacious, president and CEO, Choice Hotels International

“Our expectation is that the near-term recovery will be sporadic and regional. There are, however, several reasons to believe our franchisees will be well-positioned to capture demand as conditions improve.

“First, leisure travel, which comprises about two-thirds of our roomnights, is expected to lead the recovery and rebound faster than business travel. Second, our brands are at the right price point and location for the type of traveler … and who we expect will lead the return to travel: the resourceful American—our core customer.

“As they did in previous down cycles, we expect these guests will replace lavish trips with lower-cost getaways, presenting an opportunity for our portfolio when folks get back on the road.

“Speaking of the road, we expect Americans will choose to drive when their ability and appetite for travel return. We believe that heightened concern about the safety of air travel, low gas prices and our strong presence in drive-to locations will, taken together, allow us to capture an outsized share of pent-up travel demand as stay-at-home orders are lifted.

“Our strategic focus on the cycle-resistant extended-stay segment and investment to grow our new-construction WoodSpring Suites brand afforded us a competitive advantage as the crisis unfolded by allowing us to capitalize on demand for longer-term stays.”

Bruce Haase, president and CEO, Extended Stay America
“We serve guests with different needs. Our product and our business model are uniquely suited to extended-stay guests. And our sales and marketing engine is focused on delivering guests to our properties that are working on long-term projects, guests in search of temporary housing and guests that are navigating through life’s transitions.

“And as demand drivers change, we have the ability to adapt to the environment and access different customer segments through our expertise in extended-stay revenue management and local sales. …

“Success in the extended-stay business is often a very local effort, and we have put boots on the ground again. Our product and our core customer base, of course, is also well suited to the current environment. Our hotels are generally located in suburban and highway locations, which are convenient for customers that drive rather than fly. We have virtually no exposure to traditional group business segment that is essentially evaporated and may take a very long time to recover.”

Chris Nassetta,* president and CEO, Hilton
“Going forward, we are working closely with our ownership community to define the hotel operating model of the future with a goal of developing operating standards that will keep our customers safe and drive enhanced efficiency and profitability, while continuing to deliver products and service that customers will pay a premium for. At the corporate level, we’ve reduced executive salaries, furloughed nearly two-thirds of our corporate workforce, eliminated other non-essential expenses, including capital expenditures and suspended share buybacks and dividends. Further, as a precautionary measure to preserve financial flexibility, we drew down on the remaining amount under our credit facility, pre-sold Hilton Honors points to American Express and successfully executed a bond offering, all of which resulted in a pro forma cash position of $3.8 billion at the end of the quarter, which we believe has more than adequate liquidity to get us through the crisis. …

“Additionally, the majority of our previously halted construction projects in China have restarted. In the U.S. and Europe, we’re starting to see sensible and staged re-openings of economies. We think temporary hotel suspensions have plateaued, and we are now seeing reopening requests. Our sales teams are engaged with customers on business for the back half of the year and into 2021 and beyond. In the last week alone, we booked tens of billions of dollars in group business in the Americas.”

Mark Hoplamazian, president and CEO, Hyatt Hotels Corporation
“It is very difficult to have any certainty around the timing or shape of the recovery, but we do know, we’ll get through this and travel will recover. We expect that the basic human desire to explore and travel will persist with a continued focus on seeking out experiences, more than products.

“We understand that our corporate customers are evaluating how they will ramp up following the relaxing of the strict guidelines that remain in place in most commercial centers around the world, at this time, and that their plans will likely include modified work-at-home and travel practices. When we think about what the profile of a recovery might look like in the second half of this year and into 2021, it’s helpful to break down the primary sources of business into leisure transient, business transients and group. We believe transient travel in general will lead the recovery with leisure transient perhaps being the first to come back.

“You will likely see stronger demand in drive-to resorts and leisure destinations initially. We believe business transient travel will follow as businesses ramp up their activities. We believe group business will be the slowest to recover, given lingering concerns around larger group gatherings and ongoing social distancing mandates.

“While our group cancellations to-date have been concentrated in the first half of 2020, we believe that corporate group bookings for the second half of the year are at risk, especially for meetings involving a significant number of people. We believe that association group business will be somewhat better than corporate group business through the third and fourth quarters of this year, based on our discussions with our association customers. Overall, we expect group business to be down significantly this year with higher confidence about recovery in group in 2021 where cancellations to date have been very limited.”

James Risoleo, president and CEO, Host Hotels & Resorts
“Shifting to 2021 total group revenue pace, we began this year with 2.3 million definite rooms on the books for 2021 and pace was nearly 3% ahead of the same time last year. Although 2021 group booking activity is half what it was last year and our total group revenue pace is now flat, we believe group demand (will) return over time. With decision-makers on the sidelines and (in) wait-and-see mode, we believe the pace of recovery in both group and business transient will depend upon customers feeling safe to travel. Markets with stronger group for 2021 are San Antonio, San Diego, Seattle, Los Angeles and Chicago, whereas New York, Orlando, San Francisco, San Jose, Denver and Boston currently have pace opportunities.

“Given the current uncertainty, pace by market could change considerably in the weeks and months to come. We continue to believe in the long-term viability of the group business. While the association business model relies upon generating income from large group meetings, a more intangible reality is that most group meetings allow members within an industry to connect with and learn from each other while building relationships and trust in a manner that we don’t think it’s possible to replicate digitally.

“In the long run, we believe using group volumes to compress, supply and generate productive yield management will remain a cornerstone of the lodging business. That said, we are positioning ourselves for the recovery to be led by drive-to leisure destinations as observed in China and other parts of Asia that are several weeks ahead of the United States. The recovery thus far has been led by domestic leisure stays in drive-to destinations. With renovations recently completed, in construction or planned within the next 12 months, over 70% of our portfolio and our strongest drive-to leisure markets will be fully refreshed, specifically, our hotels in Phoenix, San Diego, Orange County, San Antonio and Florida, which represent over 13,000 keys, or nearly 30% of our total portfolio, are very well-positioned to capture a recovery in drive-to leisure demand. …

“We believe branded hotels, communication around and execution of rigorous cleaning standards will resonate well with customers. Moreover, we expect the strength of their loyalty programs to be a strong driver of demand to our properties.”

Keith Barr, CEO, InterContinental Hotels Group
“Owners are under incredible pressure. We see our hotels’ break-even point is in the 30% occupancies, and we are in the mid-20%s now, but of course there will be some owners struggling. Our policy is to be a good partner. We feel we are in good place for the next few months, and as the situation becomes more comfortable—I will not say comfortable—occupancies will rise. …

“I do not think business travel is over. I am not one of the naysayers who say business travel is done. Our investments are a long gain, and we and owners expect to see returns over that time space. Travel will change and evolve, and we are trying to stay on top of that.”

Arne Sorenson, president and CEO, Marriott International
“While no one can know exactly when and how demand will start to return in each part of the world, Marriott is ready. We have swiftly made significant short-term changes to our business and enhanced our liquidity position while remaining focused on how to best position ourselves for the recovery and for growth over the longer term. As global trends have started to stabilize, teams across the company has been diligently monitoring various data points and developing a cross-discipline recovery plan. In addition to tracking the booking and cancellation information and macroeconomic indicators, we are also looking at data around COVID-19 testing and cases and government regulations, all with an eye towards ramping up our business in a thoughtful way as restrictions are lifted and market conditions improve. We are consulting with our owners to analyze potential market demand and hotel-level cash flow to help inform when and how to reopen their hotels. Region specific marketing strategies are being developed that we plan to roll out in phases, as different customer segments and levels of demand return.”

Bill Hornbuckle, acting CEO and president, MGM Resorts International
“Ultimately, the precise reopening dates depend on decisions by elected officials consulting with public health authorities. In MGM’s case, that means the governors of Nevada, New Jersey, Maryland, Michigan, Massachusetts, Mississippi, Ohio and New York. Due to various public health conditions in these states, we are preparing to open properties in phases. Given the stabilization of cases in Asia and recent comments by the Macau’s chief executive, we anticipate this market may show meaningful recovery early this summer.

“In the U.S., certain states such as Mississippi will likely open sooner than more heavily impacted states, and we anticipate that regional drive markets, obviously, will rebound faster than fly-in destinations. Once Las Vegas Casinos are allowed to open, we will have made decisions about property openings based on consumer demand and the economics of individual properties will also balance those needs of our employees, our local regulators and other key stakeholders.

“In all cases, we will open in a way that protects the health and safety of our guests and our employees, and again I must stress that is our highest priority.”

Thomas Baltimore Jr., president and CEO, Park Hotels & Resorts
“While it is too soon to forecast what hotel demand will look like once travel resumes, we do have some general themes. We look to signs of improving conditions, we expect leisure travel to be the first segment to generate the highest demand, particularly in our drive-to markets in Florida, like Orlando, Key West and Miami. We believe the leisure segment will help to gradually fuel confidence in travel, followed by a return to travel by business transient and association and social groups; and then finally, corporate group.

“Overall, leisure-related revenues account for approximately 40% of our total revenues when considering that nearly all travel to our aligned properties has some leisure component, although demand in Hawaii is heavily dependent on the resumption of airlift. At this time, we are not expecting normal airlift to return until the end of June at the earliest and this, of course, is subject to change as things continue to unfold.

“In terms of group demand for the balance of the year, group revenues are down approximately 55% with the second quarter a virtual washout. Although at this point, the fourth quarter is holding up relatively well across several of our key markets. The situation, obviously, remains very fluid. So these numbers will most likely change as the path to recovery unfolds.”

Jon Bortz, chairman, president and CEO, Pebblebrook Hotel Trust
“For Pebblebrook, we would expect our hotels to outperform their markets in the recovery years similar to what they did last year and early this year before the pandemic struck. Our hotels are in better condition on average than our competitors in our markets. Forty out of 54 of our properties have undergone major renovations, redevelopments or transformation in just the last five years, nine in just the past few months including those being completed as we speak and 10 more in 2018. This will be a big advantage over the next few years.

“Many of our private-sector competitors are likely to lack the capital to maintain their hotels in years to come, widening the advantage we already have. We expect hotel conditions will rule with the customer base as they have in prior recessions and in the early years of prior cyclical recoveries following significantly harmful events. We also expect our lifestyle hotels to outperform in the recovery because of their experiential focus for customers looking for something that lowers the stress and anxiety that will now likely be associated with travel. We also think they’ll outperform because of their more personalized nature of the services we’re able to provide to our guests and because of the attractiveness of our typically smaller size footprints and smaller public areas which should allow our customers to feel safer in our properties.”

Leslie Hale, president and CEO, RLJ Lodging Trust
“Having gotten our arms around our liquidity and having comfort with our financial position, we are now focused on developing a thoughtful framework to reopen our hotels in a socially and financially responsible manner. As the stay-at-home ordinances are lifted, we are carefully evaluating our decision to reopen hotels, which will correlate to both the timing of businesses reopening and a sequencing of the return of lodging demand.

“Unlike prior recoveries, we do not believe that demand will necessarily follow traditional patterns in the recovery phase as consumer behavior adjusts to the new normal. We anticipate that the primary lodging demand segments will ramp up at a highly staggered pace.

“We believe that initially there will be some pent-up leisure demand as stay-in-place orders are lifted, which should benefit our hotels in drive-to markets such as South Florida, Southern California, Charleston, and New Orleans. There are some early indications that leisure demand is picking up in states where restrictions have already been lifted.

“We expect airline travel to ramp slowly as the economy reopens with domestic travel recovering first followed by international. We expect to see incremental demand at some of our hotels as air traffic ramps. Although we anticipate some segments of corporate demand to come back sooner, we believe that overall corporate demand will see a more gradual recovery. In reopening our hotels, we will consider the pace of corporate demand on a hotel-by-hotel and market-by-market basis.”

John Russell, interim CEO, RLH Corporation
“We are cautiously optimistic that when travel resumes, RLHC will be a net beneficiary as our hotels are economically priced and predominantly located in secondary and tertiary drive-to markets, away from urban centers that have been hotspots of COVID-19. We believe that our price point, locations and our geographic dispersion could contribute to RLHC’s resilience as the economy and midscale chains typically outperform in a recovering economic backdrop. …

“We feel very strong that the leisure markets will come back substantially and pick up June, July, August into September. And that’s great for economy hotel brands like Americas Best Value Inn and Knights Inn.

“I did see where RV sales were up 21% for RVs. So that’s an indicator that there’s going to be an awful lot of road traffic over the summer. And we’re positioned—we’ve got a lot of hotels, particularly some exterior-corridor hotels that are off the interstate highways on your way from point A to point B that should relish a lot of that business.

“On the other side, the business travel will be slowly coming back. Group business, corporate business … I think you’ll see that pick up in October, November. Going into next year, that will be a slower build, and that will affect more of our upscale-type brands like Red Lion and Red Lion Inns and (Hotel) RL.”

John Murray, president & CEO, Service Properties Trust
“We expect our diverse portfolio of suburban extended-stay and select-service hotels may recover more quickly than our urban full-service hotels when stay-at-home orders are lifted, as we expect guests may prefer smaller hotels in less densely populated suburban communities to larger urban group hotels at least until this health crisis is behind us.”

Geoff Ballotti, president and CEO, Wyndham Hotels & Resorts
“We want to reiterate that our franchise, leisure transient, fee-for-service business model is highly resilient during economic turmoil. Over 90% of our hotels here in the United States remain open and operating. And we have an unwavering confidence in our ability to weather this crisis. …

“Furthermore, with over 90% of the hotels in our system in the select-service space, these hotels are less labor-intensive and typically operate at higher margins than full-service hotels. They generally average fewer than a dozen full-time employees and staff levels are highly scalable to demand.

“We believe that the majority of our hotels can support debt service at occupancy levels of approximately 30% before receiving any governmental assistance, which lowers this 30% break-even considerably. …

“Our brands which are concentrated in the select-service chain-scale segments have been outperforming the higher-end full-service hotels. Nearly 90% of our domestic properties are positioned along highways and suburban small metro locations, which have fared better than those in downtown metro markets.

“Our customer profile in the U.S. is about 70% leisure and almost 90% drive-to making us less reliant on business days and air travel. While the impact of COVID-19 continues to rapidly evolve and the ultimate duration remains highly uncertain as this pandemic abates here in the U.S. our franchisees should be among the first to benefit positioning us well for a quicker recovery. …

“Converting independent hotels to our brands has always been an important part of Wyndham's consistent rooms growth through both up and down cycles. And as this industry recovers from COVID-19, we believe conversions will become an even more important growth vehicle for us.

“With over 15,000 independent economy and midscale hotels in the United States, we have restructured our franchise sales and development teams to increase our conversion coverage by approximately 3 times, redeploying new construction salespeople to convert independent economy and mid-scale franchisees to our brands, brands that are designed to drive higher market share through our larger loyalty and marketing programs. In addition to the increased support our teams can provide franchisees, navigating through the post-COVID-19 recovery, our brands could help increase franchisee profitability by driving lower sourcing, technology, distribution and OTA commission costs given our size and scale as the world's largest hotel franchise company.”

*Editor’s note: Hotel News Now is a division of STR, a CoStar Group company. Chris Nassetta serves on CoStar Group’s Board of Directors.

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