The U.S. hospitality industry has been battered by government-implemented travel bans and a related drop in tourism, as increasing numbers of novel coronavirus outbreaks continue to spread across the country.
Hotels have generally suffered significant hits to their stock prices as international and domestic border restrictions have progressively paralyzed travelers.
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To limit contagion of the deadly COVID-19 respiratory illness, the federal government has taken several steps to restrict travel from countries most under pressure from infections, beginning with China and Iran at the ends of January and February, respectively.
Since the World Health Organization (WHO) deemed COVID-19 a pandemic on March 11, the White House expanded its list of travel restrictions to the UK, Ireland and certain other European nations.
Within the U.S., many local and state leaders have also enacted measures on inter- and intrastate levels, such as committing visitors to self-quarantines or ordering stay-at-home policies, to further help stunt the reach of the virus, including Florida, Hawaii, Massachusetts, Texas, and Vermont, among several others.
To date, more than 877k of COVID-19 cases have been identified in 180 countries and regions, with around 21.6% of that total having hit the U.S., according to the Center for Systems Science and Engineering (CSSE) at Johns Hopkins University. Nearly 44k people have suffered fatalities globally.
Cancellations Mount
Against this backdrop, economists at Tourism Economics noted that travel restrictions are “being imposed in more countries and more rapidly than expected, while the spread of the virus and supply restrictions are further reducing travel sentiment.”
The impact will certainly take a toll on domestic and global growth, in part as event cancellations hurt larger cities with high profile international conventions. According to Tourism Economics, groups account for roughly 24% of hotel room demand, and events have been canceled at a steady clip.
Under its downside scenario, Tourism Economics expects global arrivals to fall 17.9% in 2020, a plunge of 263 million arrivals from the prior year, while full recovery is not anticipated until 2023.
Meanwhile, in the hotel sector, Tourism Economics foresees 12m international hotel room nights will be lost in 2020 alone, with close to 1% of U.S. hotel room demand forfeited. In 2003, when the country combatted cases of severe acute respiratory syndrome (SARS), domestic demand fell only one month and rose 1.3% for the full year – even with a 5.4% fall in international markets...
Disintegration
The dismal outlook and low-to-no occupancy rates at major U.S. hotels have helped drag down their property values over the course of the recent increase in viral outbreaks.
The price per room of hotel properties fell by more than 28.3% year-over-year in February and over 16.3% from the previous month.
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Nervous investors have likewise responded.
Stocks have taken a nosedive at a host of hotels, including Hilton Worldwide Holdings (NYSE: HLT), Marriott International (Nasdaq: MAR), Hyatt Hotels Corp (NYSE: H), and Wyndham Hotels and Resorts (NYSE: WH), as well as at a number of real estate investment companies and trusts whose holdings mainly reside in the hospitality business.
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To help stave off the bleeding, some beleaguered hotels have taken a series of actions, including deep pay cuts among their corporate staff.
Hilton noted Thursday that with “travel at a virtual standstill, operations have been suspended across many managed and franchised hotels and those hotels that remain open have reduced services for guests because of decreased occupancy levels.”
At the corporate level, Hilton said that among the actions it is taking to “significantly reduce expenses and preserve liquidity,” its CEO Christopher Nassetta is forgoing his salary for the remainder of 2020, and its executive committee is taking a pay cut of 50% for the duration of the crisis. The company is also reducing pay and furloughing other of its staff, as well as eliminating non-essential capex and suspending all share buybacks and dividend payments.
Shares of Hilton have fallen roughly 42.72% since February 9 to US$64.76 intraday Wednesday, according to the IBKR Trader Workstation.
Also, Moody’s Investors Service recently lowered Marriott’s credit rating one-notch to ‘Baa3’ from ‘Baa2,’ while also placing it on review for further downgrade.
Moody’s lodging and cruise analyst Pete Trombetta noted that the cut “reflects the material earnings decline Marriott will experience in 2020 due to travel restrictions being put in place across the U.S. related to the spread of the COVID-19 coronavirus which will cause the company’s leverage to increase to above its downgrade trigger of 3.75x.”
Trombetta continued that occupancy and revenue per available room (RevPAR) in the U.S. had fallen “significantly” over a two-week period to March 23, and he expects these measures “to remain weak until the travel restrictions are lifted.”
Marriott’s ability “to bring its metrics back to historic levels will be delayed by our expectation for a prolonged recovery,” he added.
Marriott said it has a US$4.5bn revolving credit facility that expires in June 2024 to provide liquidity when needed. As of March 17, the company had drawn down US$2.5bn primarily to support commercial paper maturities.
The company’s levers to preserve cash include reducing or eliminating share repurchases, suspending its cash dividend, reducing payroll and other costs, as well as cutting back investment spending.
Marriott said it has not repurchased shares in 2020 other than US$150m worth of buybacks reported February 26, and it anticipates that its previously announced first-quarter 2020 dividend paid on March 31 will be the last until conditions improve. The hotel giant further noted it is working with vendors and other partners to preserve working capital.
Marriott CEO Arne Sorenson and executive chair Bill Marriott Jr. are also reportedly forgoing their salaries for the remainder of 2020, with the executive team and global staff taking pay cuts, working shortened weeks or going on temporary leaves.
Shares of Marriott have shed more than half their value – about 53.3% year-to-date – and were last trading down another 3.75% to about US$71.10 intraday Wednesday. It had hit is latest 52-week high of US$153.39 on December 27, 2019.
Indeed, the financial markets have been on edge throughout the virus’s spread, and stocks in the intraday trading session Wednesday had taken another leg lower.
The Dow Jones Industrial Average was last down 2.2% (21,430), the S&P 500 off 2.79% (2,512) and the Nasdaq last lost around 1.95% (7,549).
Investors in the hospitality industry and will most likely be closely watching further fallout from COVID-19 on travel, tourism, and lodging, as the virus continues to impede hotels’ revenue capabilities nationwide.
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