Though their high-flying – and typically higher paid – colleagues working in the U.S. airline industry are getting lots of attention because the pending or already accomplished elimination of more than 100,000 jobs, nearly a quarter of the nation’s 2.3 million hotel workers have yet to be recalled to work.
That’s because thousands of restaurants and hotels remain closed or are operating at greatly limited capacity due to states’ quarantine policies, local government stay-at-home orders, and many companies’ work-at-home policies. The result: travel in general is off 65% to 80% in many parts of the nation, and patronage of local restaurants, bars and banquet facilities is way down because both local government restrictions and consumers’ own fears of contracting the virus.
And that’s pushing the lodging and food service sector of the giant hospitality industry to the brink. Nearly a quarter of all loans made to U.S. hotels – representing $20.6 billion in debt – is now more than 30 days delinquent. As a result, roughly one million guest rooms are in immediate danger of being removed from the marketplace via foreclosure. And according to the American Hotel and Lodging Association, each one hundred rooms from the marketplace will result in lost jobs for around 250 people who work directly for hotels and the like, or whose jobs support the lodging industry.
Meanwhile, over in the even larger restaurant business, which less than 20 months ago included more than 660,000 distinct locations around the nation where roughly 12 million people held part- and full-time jobs, almost 16,000 eateries were shuttered in the first six months of 2020. Tens of thousands of additional restaurants are threatened by either debt foreclosure or the prospect of simply running out of the cash they need to continue operating.
Together U.S. food service workers and employees of hotels, motels, resorts and short-term vacation rental properties total held about 14.3 million jobs at the beginning of this year, according to the federal Bureau of Labor Statistics. By April nearly half of those jobs were gone thanks to the rapid spread of the coronavirus that causes Covid-19.
An anticipated rebound and the arrival of the peak summer vacation season – neither of which came near to living up to overly optimistic expectations – led to the return of roughly half of those displaced hospitality workers. The BLS’ preliminarily reported that the combined sector employed 11.1 million people in August.
But now, with few signs that a real rebound in travel demand is anywhere in sight, many of those recently re-instated hospitality sector jobs are likely to be wiped out again over the next few weeks as the industry tumbles into its annual autumnal slow season and as the hoped-for demand recovery continues to fizzle out. Only this time, thanks to that big pile of delinquent hotel and restaurant debt that continues to grow daily there likely will be a lot fewer hotels and restaurants to come back to work for even when the pandemic subsides or effective vaccines go into wide distribution.
The hotel industry’s debt situation literally has never been this bad. At the end of last year only 1.3% of all debt on hotel properties in the United States was categorized as delinquent. Even at the depths of the “Great Recission” in 2008-2010, the total value of all delinquent hotel debt never exceeded $13.5 billion. Hundreds of properties around the nation were foreclosed upon. And though most of those properties eventually were sold to new owners, rehabilitated and brought back into the market, the economic impact not only on those foreclosed property owners but also the thousands of workers whose jobs were lost temporarily or permanently was devastating.
While the industry has seen its challenges in recent years with the growth of the short-term vacation rental property business led by companies like Airbnb, VRBO.com and HomeAway. Still hotels have continued moderate growth in number of locations, number of available guest rooms and number of guests over most of the last decade. Even hotels’ critical “RevPAR” – Revenue Per Available Room – managed to grow modestly even as the industry adjusted its marketing and positioning away from high-end hotels and toward mid-market properties.
But 2020, thanks primarily to the Covid-19 pandemic but also to the growing amount of social unrest and political and economic unease, has destroyed all of those positive trends. A recent survey done for the American Hotel and Lodging Association showed that while most hotels have reopened for business, consumers for the most part are still staying home. Only a third of Americans have traveled for leisure or vacation since March, and only 38% say they are likely to do so by the end of this year. In most normal years 70% or more of Americans travel away from home on a vacation or for other leisure purposes.
Hotels in downturn areas or other large business travel locations around the nation are particularly troubled by debt and the high costs associated with keeping very large facilities open. Business travel is down much more than leisure travel, in large part because companies don’t want to risk their employees’ health – or their own financial resources should employees get sick or even die and their companies then being held legally and financially liable. Thus downturn and other business class lodging facilities are suffering relatively more and bleeding lots for cash than mid-market and tourist class facilities.
Still, while the impact of that dramatic, unprecedented shift in travel consumer behavior on the airline industry is well known, he plight of the hotel and lodging industry and people, while equally bad, is less so.
So, to draw attention to the problem, and to what they say is their industry’s desperate need for financial assistance, more than 4,000 lodging industry leaders sent Congress an urgent letter in late August, pleading for help in fighting off widespread foreclosures on their properties. Specifically the hotel industry group asked Congress to enact the HOPE Act, introduced by Reps. Van Taylor and Andy Barr, Republicans from Texas and Kentucky, respectively, and by Rep. Al Lawson, a Florida Democrat.
The HOPE Act would create a pool money that the federal government could loan to owners of commercial property heavily impacted by Covid-19. Hotel property owners are the most obvious and numerous candidates for such loans, which would provide them the equity needed to stay in business and current on their commercial loans during the pandemic.
AHLA CEO Chip Rogers said that because of the pandemic and the dearth of travel it has created, “thousands of hotels can’t afford to pay their commercial mortgages and are facing foreclosure with the harsh reality of having to close their doors permanently. Tens of thousands of hotel employees will lose their jobs and small business industries that depend on these hotels to drive local tourism and economic activity will likely face a similar fate.”
The HOPE Act, he said. Would “give struggling small business hotels an opportunity to keep their doors open and avoid foreclosure.”
The hotel U.S. hotel industry is dominated, at least from a marketing perspective, by huge brand names like Hilton, Hyatt, Marriott, IHG and Choice Hotels. But nearly all hotels actually are owned independently by individuals, small investment groups, or even mid-size and large corporations that invest in hotel properties but contract out their operation to big-name hotel companies. Thus, the debt on most hotels is the responsibility of the property owners, not the companies’ whose brands are on the signs out front.
And, unlike the big U.S. airlines, that can package dozens or hundreds of planes into collateralized loans, or use their massive airport and operations facilities, or even their enormous and profitable frequent flier programs to attract financing even in very tough times, hotel owners have far fewer, and typically much more expensive options for raising liquidity to see them through lean times.
“The COVID-19 pandemic is decimating the travel and tourism sector – especially small businesses like hotels. That’s why we need Congress to provide hotel owners with real relief that addresses the needs of small businesses with commercial real estate assets,” said Cecil Staton, CEO of the Asian-American Hotel Owners Association, which partnered with the AHLA in seeking Congressional relief.
“Hoteliers are responsible for millions of jobs in communities across the nation, but unless Congress acts, there may not be businesses left for those workers to return to at the end of this pandemic. We are optimistic that the HOPE Act will help hoteliers to address the debt crisis facing the lodging industry, and save good American jobs and small businesses,” Staton said.
Associations representing Latino-owned and black-owned hotels also are part of the effort to get Congress to provide loan assistance to hoteliers.
It is not clear, however, whether such assistance for hotels, or further assistance also being sought by U.S. airlines, will be forthcoming from Congress. Negotiations between the Democrats who control the House and the Senate’s controlling Republicans appear to be stalemated. President Trump and others in his administration have made vague comments about providing some help to the airlines, though probably not until after Sept. 30. That’s when current limits on laying off airline workers in exchange for up to $50 million in relief granted them by Congress in April are set to expire – and when thousands such layoffs already are scheduled to begin.
Those bitter Congressional negotiations are being carried on in the very politically charged atmosphere leading up to the Nov. 3 elections. They appear to be hung up on the Democrats’ desire for up to $3 trillion for a long list of items that would include not only relief for the travel industries and small businesses in general but a number of other programs long favored by their party but unrelated to the pandemic, vs. the Republicans’ insistence on keeping the package under $1 trillion and focused entirely on economic relief for parties damaged by the pandemic. And, increasingly Congress’ focus is shifting away from a pandemic relief or stimulus bill and onto negotiations over a new budget bill – or, more likely, a budget continuation agreement that would keep the government from shutting down on Oct. 1. It is possible, but not likely, that some sort of further pandemic economic relief package could be passed as part of any budget continuation legislation that gets passed.