Best Western Hotels and Resorts CEO David Kong painted a grim outlook for the hotel industry in the face of the coronavirus outbreak, calling it “total devastation.” In an interview with Yahoo Finance, Kong said revenue across the sector has been slashed by 90% since the pandemic began, and he expects the losses to mount.
“We have never seen this kind of devastation in the industry. Previously, back in 2009, the industry declined by 16%,” Kong said.
The chain, which operates nearly 5,000 hotels worldwide, has so far closed 300 locations in the U.S. Kong says “more and more” closures are likely to follow as cities enact stay-at-home orders, prompting travelers to cancel their plans.
Hotel occupancy rates have fallen to unprecedented lows amid the global pandemic. Last week alone, U.S. hotels saw occupancy rates drop 67.5%, compared to the 22.6% increase in the same period last year, according to research firm STR. Revenue per available room plummeted 80.3%. Hotels in Oahu experienced the steepest declines in occupancy, with an 86.4% decline.
The fallout has prompted hotels to act quickly.
Last week, Hilton Worldwide Holdings (HLT) announced it would furlough “many” of its company’s corporate employees, in addition to suspending share buybacks, dividend payments, and eliminating non-essential expenses. Marriott International (MAR) announced it would furlough two-thirds of its 4,000 corporate employees in its U.S. headquarters this month for 60 to 90 days. CEO Arne Sorenson also said he would forego pay for the rest of the year.
Kong said hotel closures have already resulted in layoffs at Best Western, though he did not specify how many employees have lost their jobs.
“The amount of loans that are available is not very high,” said Kong, referring to the $2 trillion rescue package passed by Congress, which sets aside loans to cover up to 2.5 times of payroll costs for small businesses. “It has certain restricted usage. If you think about the expenses at a hotel, whether it is the debt service or insurance or real estate taxes, those things are considered. Therefore it’s some relief but it’s not enough.”
The medium-term outlook for the sector remains bleak. At current rates, half of the 56,000 hotels in the U.S. are likely to close by the end of the pandemic, according to Chip Rodgers, CEO of the American Hotel and Lodging Association.
While hotels scramble to stay afloat, Kong says few will bounce back without a vaccine or resolution to the public health crisis.
“For us to recover, you have to overcome this consumer confidence challenge. And it's going to depend a great deal on how the virus pans out going forward,” he said. “It's about finding the new normal and then what we need to do to make sure people are comfortable traveling again and stay in hotels again.”
Akiko Fujita is an anchor and reporter for Yahoo Finance. Follow her on Twitter @AkikoFujita