It’s obvious that travel is way down right now, but Booking Holdings, the company that owns online travel agencies including Priceline and Booking.com, helps us put some numbers to the size of the slide. Newly booked room nights through the company’s sites were 85 percent lower this April than the same month last year. To the extent people are booking hotel stays, the company is seeing what it calls a “dumbbell” pattern: Reservations are either nearly immediate, for urgent travel, or they are for months from now, when travelers hope conditions will have improved. For obvious reasons, few people are planning vacations in June.
The stays on the far end of that dumbbell provide a sign of hope for a hotel industry that is battered by a decline in business, but it’s a sign that should be viewed warily. Hotels, like airlines, have greatly relaxed their cancellation policies, encouraging customers to book now with the promise that they can get their money back if conditions remain inhospitable to travel. This has encouraged customers to book speculative trips — reserving the option to take a vacation in the late summer or fall, locking in a favorable price as airfares and hotel rates have fallen, and knowing they can cancel the whole thing if pandemic conditions continue to make travel inadvisable. So hotels have to be prepared for the possibility that reservations on their books now won’t turn into income, and that deposits they have taken will need to be refunded. That is, they could face a miniature version of what they faced in March, as customers canceled a much more full book of reservations en masse.
“We have 10,000 customer-service people in our business, and they’re working real hard, and this is just so overwhelming,” says Glenn Fogel, the CEO of Booking, adding that call volumes have at times been triple the normal levels. “And they’re not even working from the centers. They’re working from home. Imagine that. They’ve got their kids yelling, trying to do schoolwork with the kids and all the others, at the same time they’re getting yelled at by the travelers saying, ‘Please, I need the money back,’ and then they’re getting yelled at by the hotel.”
Many hotels relaxed the terms of their cancellation policies at their own initiative as the pandemic hit, but Booking says it invoked force majeure clauses in its contracts with hoteliers that would not, advancing refunds to customers and then demanding the return of any deposits that had already been transferred to hotels. Because hotels depend on their ongoing relationships with online travel agencies (an industry led by Booking and its main competitor, Expedia), Booking will likely have success in collecting these funds eventually — as long as the hotels stay in business. But at present, many of the properties Booking would contact to seek refunds are fully closed. That leaves the company also waiting to collect the commissions that it is owed for hotel stays that actually did happen in February. (If you book your stay through a site like Priceline but then pay for the stay at the hotel, the booking commission gets remitted from the hotel to the agency after you complete your stay.) In its first-quarter earnings announcement last week, Booking increased its reserve for bad debt expense, acknowledging that it would likely never collect some of the commissions it is owed from hotels that are now in dire financial straits.
That said, there is a distinction between the outlook for equity owners of hotel properties — very grim, in some cases — and the outlook for hotel stays as an activity. Relative to a restaurant, the investment in a hotel is more weighted toward fixed, long-term investments in buildings and other physical capital and less toward the intangible aspects of the enterprise. That means the supply of available rooms is relatively fixed over time: It’s expensive and time-consuming to build new hotels; once the property is built, though, it’s likely to continue operating under some name, at some room rate, even if the particular owner of a particular hotel goes into foreclosure.
“The building will reopen under a new name or even the old name,” says Fogel. “There’s new capital. It will be there.”
