The COVID-19 pandemic has wreaked havoc on our nation and globe with a human and economic toll that is truly catastrophic. Congress should not grow numb to the devastation this deadly virus has caused, nor accept it as our new normal. Rather, we must listen, be compassionate and work together during these unprecedented times.
Throughout this crisis, that is exactly what the hospitality industry has done. Hoteliers across the country have provided a safe home away from home for frontline workers, aided their communities, and cared for their guests and associates. These small-business owners have risen to this challenge while also confronting the fact that their hotels, which represent their family’s life work, savings and future, may be another victim of this virus.
To a large extent, the hotel industry is made up of small businesses—hardworking men and women trying to make an honest living. Because of land, building and FF&E (furniture, fixtures and equipment) cost, the debt load and real estate taxes of a typical hotel is far higher than other small businesses (e.g., beauty salon or restaurant). We are grateful to Congress for quickly passing the CARES Act and the Federal Reserve for their actions in providing liquidity in the market. While these efforts have resulted in the stock market recovering their losses and allowed many companies to gain access to capital to survive the pandemic, the relief provided through the Paycheck Protection Program (PPP) was short lived and most hotels do not meet the lending guidelines of the Main Street Lending program.
According to AHLA’s State of the Hotel Industry Analysis dated August 31, 2020, four out of every 10 hotel employees are still not working. The leisure and hospitality sector is still down 4.3 million jobs since February. Almost two-thirds (65%) of hotels remain at or below 50% occupancy. Only 33% of Americans say they have traveled overnight for leisure or vacation since March, and only 38% say they are likely to do so by the end of the year. Urban hotels are particularly hard hit with occupancy levels in the thirties due to the weak corporate segment with office closings, government travel restrictions and general anxiety associated with the pandemic.
According to Oxford Economics, the industry will experience a revenue decline of nearly 50% (approximately $124 billion) in 2020. 2020 is shaping up to be the worst year in history for the hotel industry. The devastation our industry has experienced is worse than any other crisis in our history. For perspective, the expected loss of $910 billion in travel-related economic output in 2020 would be seven times the impact of 9/11.
At Best Western, almost all our hotels are family businesses with no access to public capital. Many of these families are pulling shifts, manning the front desk, cleaning rooms and doing whatever it takes to survive. The hardest part to their survival story isn’t just the hours of hard work each family member must put in on a daily basis. It’s the need to separate from loyal and dedicated staff members whom they can no longer afford and being concerned about their safety and well-being. How do you tell a housekeeper who has worked hard for you for 20 years that you can no longer afford her, and she would be on her own fending for her family with no insurance and no prospects?
Aside from putting in long hours, having to make tough people decisions and depleting their life savings, our hotel owners are also worried about losing their hotels if they can no longer make debt service. Now that PPP money is exhausted, the temporary loan forbearance has expired, and business continues to be soft, they will not be in a position to make loan payments in a few months as the industry enters the fall when the business segment is compromised and then winter, which is a traditionally slow period. What will happen to their hotels if they cannot make loan payments? What will happen to the financial institutions holding these mortgages? If these are collateralized mortgage backed securities (CMBS) loans, what will happen to these investments and the holders of these paper? There is a massive loan default crisis looming.
The slowdown in the travel sector alone will push the U.S. economy into a protracted recession. Travel supports 15.8 million American jobs in total, employing one out of every ten Americans. Further, in 2019, travel generated $2.6 trillion for the U.S. economy. And as mayors and governors throughout our country know, travel is a boon for local economies with 70% of guest spending going toward transportation, food and beverage, and other local goods and services. The failure of our hotels can have a massive ripple effect on our country’s economy.
To safeguard the U.S. economy from further damage, and to ensure the survival of our industry and small businesses, another phase of travel industry relief is needed. We pray that Congress would consider the plight of our industry and resolve their differences to focus on the needs of the American people. For our industry, we believe any meaningful relief package must include increased liquidity measures and direct financial support to distressed businesses through increased PPP funds with excused and deferred repayment obligations; protection for hotels that follow approved health and safety protocols from unwarranted litigation stemming from COVID-19; tax credits and rebates that will partially offset significant unbudgeted costs associated with protecting the health and well-being of employees and guests; and tax credits aimed at encouraging individuals to travel and stay in hotels.
The predicament of small-business owners is happening every single day and in every corner of our nation. Even worse, as COVID-19 continues to create uncertainty into our lives and economy, there is no end in sight to the struggles of small-business owners. These individuals have invested their life savings and have worked tirelessly through the years to build their businesses. Their entrepreneurial spirit is at the heart of who we are as a nation and is the backbone of the American dream. To keep this dream and these businesses alive, Congress must act responsibly and swiftly pass the next relief program so small businesses can survive and have a chance to recover. HB
David Kong is the longest-running CEO of the top 10 major global hotel chains. Since he was named president/CEO of Best Western Hotels & Resorts in 2004, Kong has led the company to its greatest growth to date. Under his leadership, Best Western has grown to a global portfolio of 18 exciting brands, comprising approximately 4,700 hotels across all chain-scale segments. The company has consistently achieved a RevPAR index of more than 109 the past seven years.
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