buyer’s market

Luxury Hotels Are Nearly Empty. Budget Hotels Still Have Customers.

Vacancy. Photo: Noam Galai/Getty Images/2020 Noam Galai

All across America, high-profile hotels and resorts have shut down: The Las Vegas Strip is closed, as are all the hotels at Walt Disney World resort and many iconic city hotels like the Marriott Marquis in Times Square and the Beverly Wilshire in Beverly Hills. STR, a leading provider of data on the hotel industry, estimates that 665,000 of the 5.4 million hotel rooms in the U.S. were out of service as of April 9. While that’s a huge number of closures, it also means most hotel rooms remain open and available for rent. In particular, lower-end hotels tend to still be open, and they have more guests in them than you might expect.

Of course, few hotels are busy, by normal standards. STR says U.S. hotels averaged 22 percent occupied during the week ending April 4. The average hotel-room rate that week was $76.51, 41 percent lower than the same week a year earlier. But that drop only partly reflects price cuts by hotels. It also reflects the fact that occupancy at luxury and “upper upscale” hotels has fallen into the high single digits, while economy hotels — think brands like Days Inn and Motel 6 — have lost less business, with average occupancy holding around 35 percent. That is, the average rates people are paying to stay in hotels are down because, on average, people are staying in less-fancy hotels.

The much sharper drop in occupancy at the top of the market makes sense. Who stays at higher-end hotels and resorts? Vacationers, white-collar business travelers, conference and wedding attendees — all travel categories that have gone essentially to zero. Why do people stay at higher-end hotels and resorts? In significant part, to enjoy amenities like restaurants, pools, and spas, which are necessarily closed. And how do people get to higher-end hotels and resorts? In general, the higher a hotel’s price point, the likelier its customers are to travel there by air, which few people are currently doing.

More economical hotels are losing business, too — lots of people stay at Motel 6 on vacations or on the kinds of business trips now getting canceled — but they have other use cases that are holding up better. Truckers are still on the road. Some first responders need a place to stay near where they are working. And the crisis has created a new category of hotel business: people staying in hotels in order to achieve physical separation from others in their household. It makes sense that people who have a virus-related reason to stay out of the house would make frugal choices about hotels: Their stays may be long, households face financial uncertainty, and why pay for a bunch of amenities you can’t use?

“It’s mostly local,” said Z.B. Mohan, the general manager of the Holiday Inn Express JFK Airport, when I asked who’s staying in his hotel these days. “Maybe someone in the family wants to quarantine or stay away from family. Some people are stuck from the airport, missing connecting flights because they arrive at the airport and the connecting flight is canceled.”

According to STR, the hotels around JFK make up the fourth-best-performing hotel submarket in the whole country, with 44 percent occupancy for the week ending April 4. (Mohan says his own property has been doing better than that, with occupancy ranging from 50 to 90 percent in recent days.) While airline customer volumes are way down, flight crews still need a place to stay, and the sharp reduction in flight schedules means passengers trying to enter or leave the country via JFK are more likely to need to stay overnight. The least-occupied hotel markets in America are in the Florida Keys and Hawaii — places that have strongly discouraged visitors and where hotels are almost entirely dependent on tourism. Hotels in the western part of Maui were just 3 percent occupied the week before last, according to STR.

The employment bloodbath in hotels will be much worse than it looks from the large fraction of hotel rooms that remain available for rent. Even hotels that remain open are drastically reducing staffing: Waiters and bartenders and cooks and valets aren’t needed, and fewer guests means less demand for core hotel functions like housekeeping. HotelNewsNow provides one stark example of how deep the staff cuts can be even at hotels that are staying open: RevMax Hospitality, which manages five U.S. hotels, is keeping all of them open but has cut staffing from 500 employees to just 45. And a substantial minority of hotel owners and managers have decided it isn’t worth staying open even with a substantially reduced staff and have closed altogether.

Remarkably, it could be even worse. STR says Europe’s hotels are just
8 percent occupied and China’s bottomed out at 10 percent occupied in February. But since significant stay-at-home restrictions have already swept over nearly the whole country, it’s likely we are at or near the bottom level of hotel occupancy in the U.S. during this crisis. The key question for the industry and its workers — and for Americans who would like to get back to traveling — is how long the closures will persist, and whether American businesses and families will have the financial strength to stay in hotels like they used to once it is safe to travel again.

Luxury Hotels Are Empty. Budget Hotels Still Have Customers.