This is the Coronavirus Case Studies series. Every post in this series will talk about how the coronavirus pandemic of 2020 will affect different businesses for years to come. We’re all still processing this massive, life-changing event. This week, we talk about how coronavirus will affect the hospitality industry.
What is the Hospitality Industry?
Two weeks ago, we talked about the restaurant industry. Despite the glum conclusion and how unbelievably hard it is to spell the word “restaurant,” that was in many ways, an easier article to write. Part of that is because everybody knows what a restaurant is, but defining the hospitality industry is tougher.
To answer this question, we used the most intellectual of all sources – Wikipedia – which soon led us to the United States Department of Labor Standard Industry Classification (SIC). It defines the hospitality industry as consisting of:
- Hotels, motels, cabins, cottages, bed and breakfasts, inns, hostels, lodges, and resorts
- Camps and RV parks
- Restaurants and bars
For the sake of simplicity, we are going to focus on that first bullet point. We covered restaurants and bars previously. Camps and RV parks may, if anything, benefit from the coronavirus.
People Aren’t Travelling Much & That’s Bad News
The hospitality industry goes hand-in-hand with the travel industry. As people venture out, they inevitably will need places to stay. This is true whether you’re talking about a nasty, run-down Motel 6 or a fancy Sandals resort. Early reports showed that revenues for hotels crashed by a double-digit percentage between March 1 and March 7, 2020. That was really early, too. I couldn’t find high-quality data that was more recent than that.
Worse still, the aviation industry is on-track to lose up to $252 billion worldwide, which would represent a 44% drop in revenue from 2019’s numbers. The photo at the top of this section shows an empty Los Angeles freeway in the middle of the day.
People aren’t flying and they’re not driving, so they don’t need places to stay. This is likely to continue for the duration of the pandemic to varying degrees of severity.
The Short-Term Problems Were Worse for Hotels than Restaurants
The hospitality industry is badly struggling right now. This is true whether you’re thinking on a global scale or a local one. The statistics we cited above show a brutal, uncompromisingly grim reality for the hospitality industry right now.
Because people are not traveling, they are not booking hotels or visiting restaurants as much. This leads to a shortfall in revenue. On top of that, people are also canceling on short notice, with many customers demanding refunds. Many customers, indeed, are entitled to getting their money back per the contracts agreed upon when booking in advance. This can even lead to a situation where hotels are making negative revenue.
It doesn’t matter if the place is run by a hotel chain like Hilton, Hyatt, Mariott, or Wyndham; is an old-fashioned bed and breakfast in Appalachia; or a little AirBNB. The effects are global and unmistakable. No hotel is spared.
The Long-Term Outlook Could Go One of Two Ways
At this point, take a deep breath. The hospitality industry is not screwed forever, and many of the business owners in the crossfire of this terrible pandemic will survive. The question, though, is how precisely the hospitality industry will proceed.
In the US, there are five major hotel groups: Hilton, Hyatt, Marriot, IHG, and Wyndham. Basically every brand name hotel you can think of will fall under these five conglomerates.
- Hilton: DoubleTree, Embassy Suits, Garden Inn, Hampton, Homewood, Home2
- Hyatt: Anything with the name Hyatt in it
- Marriott: Marriott Hotels, Ritz-Carlton, Aloft, Le Meridien, Autograph Collection Hotels, Renaissance Hotels, AC Hotels, Moxy Hotels, Courtyard, Springhill Suites, Fairfield Inn, Residence Inn, Towneplace Suites, Four Points, Westin, Sheraton
- IHG: Crowne Plaza, InterContinental, Holiday Inn (Express), Candlewood Suites
- Wyndham: Anything with the name Wyndham in it, Wingate, Microtel, Ramada, Days Inn, Super 8, Howard Johnson, Travelodge
In early 2019, AirBNB owned about 20% of the consumer lodging market, making it a formidable opponent to traditional hotel chains. The industry was beginning to change rapidly and it looked like AirBNB was the way of the future.
It might still be, too. We could be looking at a decentralized hospitality industry in the future, where a plurality or the majority of lodging is provided by sole proprietors and small businesses through apps like AirBNB.
Alternatively, we could see a lot of people close their spare homes to strangers, cutting off the supply of properties on AirBNB. Some of the hotel chains could merge, further centralizing the hotel industry, not unlike airlines.
Honestly, I don’t know which way it’s going to go. We’re at a crossroads and anything could happen. Much of the impact could come down to the government’s economic response in the coming months and years.
Either Way, The Hospitality Industry Will Blossom Once More
No matter which of the two divergent paths that the hospitality industry will take, rest assured that the industry will rise again. Restaurants and bars might take a long time to recover, but they’ve been around for most of civilized human history.
Hotels and similar businesses, though, will recover much faster. They provide a necessary service for which there is no substitute. If you can’t eat out, you can always eat at home. If you can’t find a hotel or an AirBNB, there is no substitute, except for perhaps sleeping in your car, which I have done and do not recommend.
Restaurants and bars may struggle for years to come as people’s habits change. Yet as soon as travel picks back up, the rest of the hospitality industry should come back to life. Whether the quality is the same remains to be seen, as does whether it will be handled by megacorproations or sole proprietors. But rest assured that no matter what, the industry must return.
What do you think the future holds for the hospitality industry? Do you think this article is spot-on or off-base? (Much like with my restaurant post, I hope I’m very wrong.)
Let me know in the comments below. I’d love to hear what you have to say so we can process this together.