Reuters BreakingViews : Late check-in : Hotels can ride out a cleaner, more vacant future
New York’s Four Seasons hotel gives a glimpse into the $600 billion industry’s woes. The iconic hotel owned by Bill Gates and Saudi Arabia’s Prince Alwaleed bin Talal opened its doors to medical personnel but luxuries like minibars are gone, its restaurant replaced by a lobby fridge with box meals. Even when business customers return, some new habits will continue, such as enhanced hygiene protocols that require a 24-hour delay between guests to deep-clean rooms. Hotels will be lucky to run at half occupancy.
That will wipe out profits. Take InterContinental Hotels, owner of the Holiday Inn and Crowne Plaza brands. Like many big chains, it derives most of its revenue from royalties paid by an army of hoteliers using its brands. If these asset owners see a 50% fall in their typical occupancy, they may struggle to pay. In such a scenario, even if the $8 billion group manages to trim costs, its $386 million 2019 profit could sink to a loss. Accor would take a similar hit. If the French owner of the Savoy in London and the Novotel chain’s 4 billion euro revenue halves, the bottom line would likely slip into the red.
These depressed results should be temporary. Unlike the increased security measures introduced in airports after the Sept. 11, 2001 attacks, only some of the higher standards of hygiene may remain once a vaccine is found. InterContinental saw a slight recovery in China with occupancy levels running in the mid-20% range in April, compared to 5% in mid-February.
All of this benefits the bigger, well-capitalised chains. Hilton, for example, hatched a deal with Reckitt Benckiser, the maker of Lysol, and the Mayo Clinic to create new room-cleaning protocols. Accor has 2.5 billion euros of cash thanks to some well-timed asset sales. But as the American Hotel and Lodging Association reckons, hotels could close if occupancy lingers at 35%. That leaves the industry’s minnows particularly exposed.