Five Reasons US Hotel Companies May Not Recover from COVID
Being unable to recapture lost revenues and a lack of guest confidence may be a death sentence for some hotel companies
By James Downey Professor Emeritus, Lynn University | June 2020
Since the middle of March 2020, US hotel companies have suffered significantly in terms of lost revenue specifically as it applies to sales for rooms, food, beverage, telecommunication services and ancillary services all due to the COVID-19 virus. Some hotel companies have not been able to weather the storm over these last several months and have been forced to close some if not all of their properties with little or no hope for financial stability in the coming days and months ahead.
Until a vaccine is available to all Americans, the hotel industry may continue to suffer in spite of their best efforts to head off this medical anomaly.
In the information below, I will outline five observations/predictions as to the road the hotel industry will travel as the country begins to open up the economy on a partial basis at the time of this writing.
1. Product Perishability
The revenues hotels generate are at the mercy of their clientele because most lodging properties provide products and services for three distinct market segments. Those are: commercial business travelers; group, conference and convention attendees; and tourist and transient travelers. Each of these segments represents the lion share of business for the hotel industry in the US. A drop off of any or all of them could be a serious financial shortfall due to their relationship with the hotels they are frequenting.
Unlike most industries, hotels cannot afford to lose revenue from products and services offered to these three segments one day and expect to recapture it the next. This is because of the perishability nature of those products and services. For example, a 100-room hotel with zero occupancy cannot recapture the lost room revenue in the future. Conversely, a car dealer with 100 cars on the lot can recover lost revenue by simply selling those cars anytime in the future.