An Excerpt from Cleveland Research (March 17 2020) – Summary below. For further information download the following: Lodging Industry Update
Real Time Insights: RevPAR Outlooks For Mar/2Q Remain In A Free Fall; Closures & Layoffs Accelerating (Cleveland Research)
Key Points
- Hotel demand continues to fall, with anticipated RevPAR declines accelerating in the last few days. What began with Group cancels and corporate travel bans has broadened to more widespread canceling of upcoming leisure/Spring Break trips
- March and April RevPAR slipping by the day amongst revenue managers as more cities look on a path for lock-downs and close restaurants/bars, now cutting into the relatively more durable base leisure demand. Similar to prior RevPAR contractions, we are seeing Urban Lux and Upper Upscale fall by a larger magnitude while Suburban and Interstate (both more levered to drive markets) is holding up relatively better; more and more hotels considering shutting down
- Tremendous amount of stress on the hotel system as it relates to near term cash flow, layoffs, potential for hotel closures, and the implications for relationships between brands, owners, and management companies. Most expect hotel closures, layoffs and point to a need for government assistance for furloughed employees. Lenders are likely to work with owners in the next 3-6 months.
- Key focus right now in the industry is ADR in the midst of occupancy declines, with most attempting to live with lower occupancy and not make same mistakes as last time, which is easier said than done. In the last 2 contractions of following 9/11 and the financial crisis, TTM ADR declines bottomed at down 4% and 10% respectively and took 1-1.5 years to get there. As for the rate recovery, it took 5-6 years on an inflation adjusted basis to get rate back to the prior peak. Rate takes longer than occ to recover.
Conclusion
A week ago, we noted that forecasting RevPAR for us and revenue managers/industry participants was immensely challenging as it is tied to a moving target of virus trajectory and the government’s restrictions. Since that time, we have seen the deterioration in demand accelerate as the U.S. now could be headed down the path of China, S. Korea, and Italy as it relates to containment efforts. All three countries saw occupancy in the 10-15% range as a result, which could be the future for the U.S. in heading into 2H March and early April, although it is likely to impact different market types by different magnitudes. Both cruise vacations and Vegas travel has been largely put on hold/shut down for the next month, and hotel industry participants see it as increasingly likely that at least a portion of the hotel industry is headed this way as owners are now more widely considering closures. The speed and depth of the current RevPAR contraction is ahead of both 9/11 and 08/09 and Mar/April RevPAR declines are likely to meaningfully exceed the Sep 2001 decline of 23% and the 15-20% declines seen in the first nine months of 2009. Some in the industry believe 2H Mar and April could be down 50% or more. Stocks appear to be factoring in a significant amount of pressure, with brands down 30% in the last wk and 45% in the last month. REIT’s are down 50% in the last wk and 65% in the last month.