HotelAVE projects 5-year recovery for hotels after COVID-19

Coronavirus
HotelAVE estimates it will take the U.S. hotel industry approximately five years to achieve pre-COVID-19 profitability. Photo credit: Gettys

Hotel Asset Value Enhancement released a study Wednesday estimating it will take the U.S. hotel industry approximately five years to achieve pre-COVID-19 occupancy, revenue and profitability.

HotelAVE identified the industry’s deceleration in 2019 as a main reason the recovery following COVID-19 will be prolonged. Based on history, it said average rate discounting to induce and encourage travel will be the primary drag on the recovery.

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"Pricing power is gone for a while until occupancies rebuild," Michelle Russo, CEO of hotelAVE, said in a statement. "The industry's pre-COVID-19 challenges of above-average new supply and impact of shadow supply (Airbnb and others) are new obstacles the industry did not face in prior downturns."

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The company looked at how the industry recovered from the Zika outbreak in Miami, the 2008 financial crisis, SARS in Toronto and 9/11. Based on that data, it projected occupancy will recover in approximately two years, average daily rate in approximately four years and revenue per available room in five years.

In 2020, hotel revenues in the U.S. could decrease 25 to 30 percent, said hotelAVE. Based on the progression of the virus in China and Italy, it predicted hotel occupancy in the U.S. will decrease to approximately 25 to 30 percent in March and 10 to 15 percent in April, or worse if hotels close due to governmental mandate or financial necessity.

HotelAVE estimated 15 to 20 percent of its U.S. hotels will close temporarily by the end of March because the fixed carry costs are less than the negative cash flow projected from staying open as well as health related concerns for employees. The others, it said, are reducing services and available guestrooms to operate with a skeleton staff.

Urban locations, including Seattle, San Francisco, New York City and Boston, are experiencing the most precipitous decline in business, primarily due to the cancellation or postponement of group functions and local government mandates to close restaurants and limit social gatherings, according to hotelAVE. Leisure markets within driving distance of travelers have fared better with a number of hotel operators seeing new leisure bookings for the summer and fall, it said.

"The pandemic requires that all hotels in the United States implement urgent and aggressive cost-containment initiatives, including deviations from brand standards and closing food-and-beverage outlets, as well as instituting comprehensive cleanliness and sanitation protocols and crisis-management programs," Russo added. "Hotels in the United States must not just focus their efforts, energies and resources on getting through the pandemic but, most importantly, they must prepare for the recovery from a financial, operational and marketing standpoint."

HotelAVE’s current asset-management portfolio comprises more than $5.5 billion and 22,000 rooms.

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