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Yahoo Finance Presents: Best Western CEO David Kong

On this episode of Yahoo Finance Presents David Kong, CEO of Best Western, joins Akiko Fujita to discuss the impact of coronavirus on the hotel and hospitality industries and how they hope to recover.

Video Transcript

[MUSIC PLAYING]

AKIKO FUJITA: David Kong, CEO of Best Western Hotels and Resorts, so good to have you on today. Thank you for joining us. I want to start with where things stand from a broader perspective.

We're a month into this crisis here in the US. But, of course, you've got global operations, so you've been dealing with this longer than those of us here in the US have. How big of a hit has Best Western taken as it stands right now?

DAVID KONG: It's an unprecedented type of a hit, we have never seen this kind of devastation in the industry. You know, previously, back in 2009, the industry declined by 16%, and that was unprecedented at that time. But right now, our revenue is off by almost 90%.

So it's extremely difficult time, and many of the hotels worldwide are closed right now. And many of them are doing very poorly, and many of them are thinking about closing as well. So it's a total devastation. It's very difficult.

AKIKO FUJITA: 90%, that is-- that's a significant hit. What percent of your hotels are currently closed right now? And what are you doing to make sure you can keep some of those employees on your payroll?

DAVID KONG: Yeah, many of the hotels worldwide are closed, not by their own so choosing but government directives and whatnot. So I mean, and that is no business, so it doesn't make sense for them to be open. In North America, where we have about 2,500 hotels, we have about 300 that's closed right now in North America, but more and more hotels are thinking about closing. And more and more cities and states that have stay-at-home or other restrictions, so they are forcing hotels to close.

AKIKO FUJITA: And what has it meant from an employment perspective? I know a lot of these owners of your hotels-- I mean, these are small businesses as well. What have you heard in terms of how many people have had to be laid off?

DAVID KONG: Oh, a lot. If the hotel's closed, and those employees are laid off-- thankfully, we have the CARES Act that was passed by Congress. That's going to help because the hotels that are open will get some relief, and we'll give them an incentive to hire people back.

Although I would be quick to add that the amount of loan that's available is not very high. It's 2 and 1/2 times the payroll cost, and it has certain restricted usage. And so if you think about the expenses at a hotel, whether it be the debt service, or insurance, or real estate taxes, those things are not considered, and, therefore, it's some relief but not enough.

AKIKO FUJITA: How far does that get you, though? When we talk about what's set aside in that rescue bill-- rescue package, are we talking a month of the current operations? Are we talking two months? Can you give us any specifics on that?

DAVID KONG: It's 2 and 1/2 times the payroll cost, and so it's not going to go very far. And I was fortunate to be on a call with Senator Marco Rubio yesterday, and he talked about this is intended to tie us over. And they are already thinking about the fourth relief package. And he recognized that it's not enough money.

At the same time, we all recognize that it's not intended to replace our lost revenue or lost profit. We all recognize that. It's a relief to tie us over, but he does recognize it's not enough. And he's trying to help with a fourth package.

AKIKO FUJITA: We've heard the White House say, repeatedly, there are phases of stimulus that are coming. You talk about the conversation you've had with Senator Rubio. What specifically would you like to see in this next phase as it relates to the hotel industry?

DAVID KONG: Well, first of all, I think the amount made available to us needs to be increased significantly to cover the debt service, and [INAUDIBLE] taxes, and insurance, and all the things that the hotel now has to has to find a way to pay.

AKIKO FUJITA: How much specifically do you see when you say significantly?

DAVID KONG: We asked Senator Rubio if he would consider four times the payroll cost for us to just pay the essential bills that we need to pay.

AKIKO FUJITA: And what conversations have you had with the White House? I know you were in that meeting with President Trump several weeks ago. Have you had any follow up conversations with the president or the vice president?

DAVID KONG: Not with the president or the vice president. We did have conversations with the Treasury Department. Yesterday, we were on a call with the Deputy Secretary of the Treasury and Mr. Mnuchin, and he was very helpful. Although, as we can all imagine, they have to come up with the guidelines.

And it's really hard to create this because this is wholly unprecedented. And it's difficult for them to write the guidelines properly, so it's taken a little bit of time. But for as long as they are taking, that's time that our hotel owners don't have in making ends meet.

So they recognize it's urgent. And they recognize it's complex. And they are trying to do the best they can, and we appreciate that effort.

AKIKO FUJITA: Let's talk about what the hotel industry has done to try and help with this effort to combat the virus. I know a lot of hotels here in the US, especially New York City, have offered up their space for hospital workers and others who are looking to quarantine away from their families as well. What conversations have you had directly with the federal or local government to use some of the Best Western facilities as an alternative space?

DAVID KONG: We haven't had those direct conversations with the state or various municipalities because it's really an action that the hotel owners and operators need to take themselves. It's a decision they need to make. We did provide very thorough protocols that they should consider like how they should clean a room and, you know, for example, if it's a health care worker staying at the hotel, maybe you don't need to clean the room daily.

And those workers can simply put the linen in a bag, and we can take the laundry and clean it for them. And so there are precautionary steps that we can take to safeguard everyone's good health. And we've done that.

But I also want to take this opportunity to thank the many health care workers that are putting their lives at risk and their families at risk to help us as well the first responders. If you think about the law enforcement, and EMT, and fire fighters, and the like, a lot of these people are putting their lives at risk, and we are so grateful for their service.

AKIKO FUJITA: And finally, David, I've heard some pretty grim predictions for the hotel industry over the last few weeks, you know, millions of jobs that are likely going to be lost coming out of this. I heard the CEO of the HLA say that he thinks 50% of the hotels may not survive. As you look at the broader landscape right now, what do you see on the other end?

DAVID KONG: I think it's going to be a bit of a challenge in terms of a recovery, and Senator Rubio recognized that as well. He said what I wanted to say, which is, 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. And if we can find a cure for it, I'm optimistic that we would find a cure for it soon.

At some point in the future, we need a vaccine so people feel comfortable about traveling. This virus is going to forever change our lives, and it's about finding the new normal and then what we need to do to make sure people are comfortable traveling again and staying in the hotels again. And as well because there's so many layoffs right now, people have to feel good about their job security and companies have to feel good about the confidence going into the future. So there are a lot of factors to consider.

AKIKO FUJITA: But that 50% loss, is that a realistic number to you?

DAVID KONG: I can't begin to-- [LAUGHS] to do a forecast on that. So much depends on how long this crisis continues.

AKIKO FUJITA: OK, David, I really appreciate your time today.

DAVID KONG: Thank you very much.