People are not traveling or going out due to event cancellations, government mandates, and lockdowns. The Covid-19 pandemic has plummeted the airline and hotel businesses.
Hotel executives believe the recovery could take two years or more. Hotelier André Balazs told Crain’s that “it could take 24 months before rates and occupancy levels return.” Adding that most hotels in New York City would be closed “within a month” as a defensive move to cut costs.
New York City Comptroller Scott Stringer expects “hotels will be more than two-thirds empty through the end of June,” but could persist longer with recovery not seen until the first quarter of 2021, according to Crain’s. The average hotel occupancy rate in NYC last year was 86.2% according to data company STR. The city predicts the occupancy rate could drop to 20%.
Similar to Balazs’ view that the industry could take years to rebound, STR analyst Jan Freitag told Crain’s, “What we know is on a national level, it takes us twice as long to bring rates back than to cut them. It’s not going to be a V-shaped recovery. It’s an elongated process.”
For short-term rental operators, the situation is just as dire. They have fixed obligations such as leases and staffing costs, but their revenues have dropped significantly. According to data company AirDNA, demand for short term rentals is seeing significant setbacks worldwide. AirDNA noted that “after the onset of Covid-19, future demand throughout the region has retracted.” The company projects that by the beginning of May, most destinations will average about half the bookings of that prior to pre-February.
What kind of impact is Covid-19 having on the average daily rates (ADRs)? Based on AirDNA data, the revenue management strategy varies and splits along operators of urban and leisure markets. According to AirDNA, “destination-based hosts are being highly proactive and have lowered rates until the summer. On the other hand, prices of accommodations in big cities remain largely unchanged.”
Covid-19 has devastated China’s real estate companies and has led to a number of bankruptcies. Some of the bankruptcies were due to an already weakened real estate market. China’s rental management companies and short-term rental companies were under “immense pressure from containment policies and reduced travel, “according to The Real Deal. This pandemic could put struggling U.S. short term rental operators out of business.
Airbnb’s China bookings took a dive as a result of the coronavirus. According to a WSJ report, “Just over 1,600 bookings were made in Beijing from March 1 to March 7, down 96% from the more than 40,000 bookings made Jan. 5 to Jan. 11. Bookings made in Seoul and Rome fell more than 40% over the same period, which predates Italy’s nationwide quarantine.”
The lodging business is correlated to and impacted by people’s mobility. At the moment, travel restrictions around the world continue to be in flux. Governments are assessing their Covid-19 situation and will close their borders if necessary. We are hearing more government resorting to border closures. Until there is credible containment, travel will not resume. Our concern is that even when travel picks up, it will take the industry longer to recover from this devastating decline. We fear some operators may not be able to recover at all.
