Business and leisure travel came to an abrupt halt in March. At best, it’s been sputtering along ever since. We saw how poorly the major US airlines performed in the second quarter. But what about the hospitality industry? Since the public health crisis began escalating in mid-February, American hotels have already lost more than $46 billion in room revenue. This is a devastating figure with the sector currently on pace to lose up to $400 million in room revenue per day based upon current occupancy rates and revenue trends. The percentage of commercial mortgage-backed securities loans to US hotel property owners that were 30 days or more past due has risen more than 22 per cent since December 2019. But there is a ray of hope. Several chains report their Chinese markets are beginning to showing signs of growth. Let’s see what’s been going on and take a closer look at the largest US hotel corporations and how they‘ve fared in the second quarter of the year.
Hilton Hotels is one of the leading global hospitality companies with a portfolio of 18 well-known brands comprising more than 983,000 rooms in 188 countries and territories. As expected, they reported a sharp drop in quarterly earnings because of the fallout from the worldwide pandemic. Ever the optimist however, CEO Christopher J. Nassetta said, “As restrictions are lifting and properties around the world are reopening, we are seeing improved occupancy.” The company reported an adjusted quarterly loss of 61 cents per share, down from earning $1.06 per share a year earlier. Analysts polled by FactSet, a financial data and software company, were expecting a loss of 31 cents a share. Second quarter revenue came in at about $560 million, compared with roughly $2.5 billion during the same period in 2019. Revenue per available room (RevPar) dropped 81 per cent from a year earlier. (RevPAR is a key industry performance metric that’s calculated by dividing a hotel’s total guest room revenue by the room count and the number of days in the period being measured.)
In March 2020, Hilton suspended share repurchases and the payment of dividends, as a result of efforts to preserve capital and maintain liquidity. No share repurchases were made after March 5 of this year and no dividends were declared or paid during the 3 months ending June 30, 2020. The stock repurchase program remains authorized by the Board of Directors and the amount remaining under Hilton’s stock repurchase program is approximately $2.2 billion. Despite the gloomy results, Nassetta also said, “While we have a long journey in front of us, we are on the road to recovery and look forward to the opportunities ahead.” On the plus side, the company opened 6,800 rooms in the second quarter, contributing 5,500 additional rooms to the Hilton system. They also announced a new, strategic partnership with Country Garden to develop 1,000 Home2 Suites by Hilton in China, representing the first major extended stay offering for the company outside of North America.
The Hyatt Hotels Corporation is another leading global hospitality company with a portfolio of 20 premiere brands. As of December 31, 2019, the company’s holdings included more than 900 hotel, all-inclusive and wellness-resort properties in 65 countries across 6 continents. The company had a brutal second quarter. They reported a net loss of $236 million for the 3-month reporting period compared with a profit of $86 million during the same quarter last year, representing a 376 per cent decrease. Hyatt’s revenue per available room decreased by 89.4 per cent year over year. Their net loss amounted to $2.33 per diluted share in the most recent quarter compared with a profit of 80 cents per diluted share in the same time period last year. When combined with existing cash on hand, Hyatt has over $3.1 billion in available liquidity. During its earnings call, the company estimated that its monthly cash burn was $90 million, not including the payment of its next debt-maturity in the third quarter of 2021. President and CEO Mark Hoplamazion said, “There remains uncertainty regarding the full return of hotel demand to pre-COVID-19 levels. We are encouraged by the demand progression we have seen in China and also in certain markets in the US and in other parts of the world.”
China treats any new coronavirus outbreak with an immediate and firm response. Their infection rates have dropped considerably and businesses have started to return to something resembling normal. Perhaps that’s why Hilton‘s not alone in looking eastward for much needed growth opportunities. The first hotel in Hyatt’s new UrCove brand is now available for reservations on its Web site. UrCove (pronounced “Your Cove”) is aimed at China’s frequent business traveling “road warriors.” The new brand’s been developed in partnership with BTG Homeinns Hotels Group, one of China’s largest hospitality chains. It's positioned to compete in that country’s “currently underserved upper-midscale segment.” The UrCove brand is specifically designed to meet Chinese travelers’ preferences and growing expectations for a seamless, comfortable and efficient travel experience. We wish them well.
Marriott International is the largest hospitality company in the world with 30 distinctive brands, more than 7,000 properties and well over 1,300,000 rooms across 131 countries and territories. Their size didn’t spare them from the economic downturn as their second quarter results were also dramatically impacted by the global COVID-19 pandemic. Operating losses totaled $154 million in the most recent quarter, compared with 2019 second quarter reported operating income of $409 million. Their reported diluted loss per share totaled 72 cents in the quarter compared with reported diluted earnings per share of 69 cents year over year. Revenue per available room in the most recent quarter declined 84.4 per cent worldwide. The good news for Marriott though is that their occupancy rates are slowly recovering, having reached 34 per cent during the week ending August 1 after bottoming out at 11 per cent during the week ending April 11.
Once again, China appears to be a bright spot on the horizon. Arne M. Sorenson, President and Chief Executive Officer of Marriott International, reported, “Greater China continues to lead the recovery. As of early May, all our hotels in the region are open, and occupancy levels are now reaching 60 per cent, compared to 70 per cent the same time last year, and a marked improvement from single-digit levels in February.” The region’s recovery was originally led by demand from leisure ravelers, particularly in resorts and drive-to destinations. The company is now seeing more widespread business demand in Greater China, including some group activity. Sorenson added, “The improvement we have seen in Greater China exemplifies the resilience of travel demand once there is a view that the virus in under control and travel restrictions have eased.” Looking to the future, the company continues with its expansion plans. Marriott has nearly 3,000 hotels and more than 500,000 rooms in its development pipeline.
Changes and additions to existing Federal programs could assist the US hotel industry in surviving the worst of the economic fallout from the pandemic. The American Hotel & Lodging Association wants to see an extension of the Paycheck Protection Program. They’re also lobbying for adjustments to the Main Street Lending Program, both of which would give hoteliers access to further liquidity. But Washington gridlock continues to keep industry stimulus out of reach for the time being. It’s anyone’s guess what the future holds. We’ll simply have to wait and see.
Until next time…stay safe.
Good to see some improvements happening but I feel the increase in the Zoom/Team style videoconferencing will have some sustained impact in reducing the need for many to travel as often as in the past ...
Some really impressive lobbies in these places. There does seem to be some improvement so that is encouraging news.