Despite managing to eke out a small profit in the first quarter, executives at two of the largest U.S. hotel brands are warning investors about the brutal damage to their financials to come.
“We do not think our first-quarter results provide clear insight into the current environment,” said Chris Nassetta, president and CEO of Hilton. “Given the timing of the pandemic, we expect a much more dramatic impact on our second-quarter results.”
However, the year-over-year drop in earnings was already fairly dramatic: Hilton reported Q1 earnings of nearly $18 million late last week, while Marriott reported $31 million. During the same time last year, Hilton made roughly $159 million over its 6,000 properties, while Marriott made $375 million over its more than 7,500 properties.
Even though some hospitality brands have been able to salvage some revenue by housing essential workers and frontline responders, domestic and international travel has cratered, resulting in layoffs and vacancy levels not seen since the Great Depression.
According to the American Hotel & Lodging Association, at least 70% of hotel employees nationwide have either been laid off or furloughed, while more than eight in 10 rooms sit vacant.
Hilton saw year-over-year revenue per available room (RevPAR) drop 57% in March and 90% in April. Marriott saw the same fall in RevPAR in April. Globally, Hilton has suspended operations at roughly 16% of its hotels, closing 10% of its hotels in the Americas and 60% of its hotels in Europe.
Both hospitality chains, alongside Airbnb, announced new cleaning initiatives two weeks ago to ease customer concerns about the coronavirus. Marriott CEO Arne Sorenson said he doesn’t think these initiatives would be too costly in the short term, particularly as the brands are spending less than ever on services like food and beverage.
While next quarter’s earnings will be grim, revealing the full extend of Covid-19’s impact on the industry, leadership at both brands remain hopeful that recovery may be near.
“Negative trends appear to have bottomed around the world,” Sorenson said. “New bookings continue to pick up, with demand driven by domestic travel.”
To that effect, Sorenson said Marriott would be leaning on its Bonvoy loyalty program, which has more than 13o million members, although he didn’t elaborate further. He also said Marriott will issue gift cards for future hotel stays at a 20% discount.
“China does appear to be recovering and holding,” Sorensen said. “Looking at the U.S., we see the drive to markets as the strongest—that’s both leisure and local and regional business that’s dependent on the car.”
He also noted that some cities such as Chicago and San Antonio, which are easily accessible by car, will rebound before New York. Hilton’s Nassetta shared a similar sentiment, saying that the brand was “retooling” its approach for the foreseeable future, emphasizing that domestic and local travel will return before international and business travel.
“The natural human reaction is, ‘I want to move, I want to get out, I’m starting to feel safe and I’m going to get out of my house,'” Nassetta said. “‘Maybe I’ll move around the region, maybe I’ll go to the region next door. Eventually, I’m going to cross the country.'”