Hotel execs on less group business, recovery
Hotel execs on less group business, recovery
17 AUGUST 2020 9:07 AM

This roundup of quotes from second-quarter earnings calls looks at how hotel companies are handling the current lack of group business in the pandemic environment and when they expect groups to come back.

GLOBAL REPORT—The COVID-19 pandemic has led to a loss of group business for the hotel industry, and the impact of that loss is different depending on hotel companies’ mix of guest demand.

On second-quarter earnings calls, hotel executives shared how their companies are affected by and responding to the group environment, as well as their expectations for the future.

Arne Sorenson, president and CEO, Marriott International
“The clearest trend which is obvious is that folks that had near-term group business deferred more than canceled, but basically put off those meetings. I think most of our group customers want to have those meetings, and so that’s why they deferred instead of cancelled. And of course, we’ve been interested in having them defer as opposed to cancel. …

“We’ve seen group business on the books for 2020 cancel significantly, and I suspect we’ll continue to see cancellations … until we get some greater confidence around the virus. Ultimately when we get to the point where it looks like group meetings can be had safely, we will see both less deferral of business already on the books; and we’ll see new business come in. … Group business on the books for 2021, compared to what would have been on the books for 2020 a year ago, is about down 10%. In some respects, we’re likely to see the first half of next year be meaningfully worse than the second half of next year in terms of group, but that is based on a guess on where the virus is and where the vaccines are. Obviously the more the virus recedes into the background and the more confidence or availability we get in the vaccine, the more we’ll see this group business start to build back.”

James Risoleo, president and CEO, Host Hotels & Resorts
“The technology has been helpful today. We’re doing this earnings call in a couple different locations, and it’s certainly not ideal, and I know that we would all prefer to be in the same place, but you know we’re being careful and thoughtful about safety and health, as everyone else is. I, for one, am ready to get on the road. I’m done with Zoom calls. We have had on average 450 video meetings a week at Host for the last six or seven weeks, so I think it’s good to have Zoom today, but we do think that the personal interaction is key. Notwithstanding that we have looked at what happens if business-transient doesn’t come back to pre COVID-19 levels.

“A good proxy is we certainly listen to the commentary that the airlines gave. United has a point of view that it’s coming back fully. Delta had a point of view that it might be 20% impaired, so we looked at Delta’s case of 20% down. What does that mean to us? What would we do with our portfolio, our existing portfolio today? And how could we remix the business and what would the financial impact be?

“We looked at really remixing that business-transient drop of 20% to leisure. At the end of the day, it has a de minimis impact on (earnings before, interest, taxes, depreciation and amortization). The impact really is on the EBITDA margin because the business-transient slice of the business is our highest rated piece of business. We’re ready for whatever comes our way. With respect to the recovery, it’s good to have the different levers to flex in our portfolio where we can take leisure, we can take more group, and really revenue-manage the company on an asset-by-asset basis on almost a daily basis.”

Leslie Hale, president and CEO, RLJ Lodging Trust
“We continue to believe that any form of recovery will likely be slow to build in order to fully recover to pre-COVID demand levels. The industry needs all three segments to be healthy.

“For the remainder of the year, given a current resurgence in COVID-19 cases across a number of places (such as) Florida, Texas and California, we remain sober as it relates to sustainability of leisure demand, particularly after Labor Day, and any recovery from corporate or group demand, which we expect to remain anemic. While we, along with the rest of the industry, are facing extreme challenges, we continue to believe our relevant position will allow us to rebound sooner and take advantage of opportunities at the appropriate time.”

Brian Nicholson, CFO, Extended Stay America
“We are comfortable (offering guidance) to third quarter and … basically the width of the range in the third quarter is driven in large part by exactly those kinds of questions about September. A case could be made that an online learning environment in most of the markets around the country will be a little bit more disruptive to business travel. You could also make the case that we continued to grow our business, especially within groups and types of business, back in the May-June timeframe when online learning was already prevalent. I have some confidence in our team out in the field that they can continue to identify and bring that business into our hotels despite the online learning environment.

“As we move further into 2020 … there are more items of concern. You get into a presidential election season … there can be just a lot of unknowns around what’s going on. When we get back into more people indoors and less exposure to sunlight, less vitamin D, who knows what (will happen) to case counts. We are going to watch these things very, very carefully. Fortunately, we have a tremendous number of hotels around the country. We are in every major market, except (Oahu, Hawaii) within the United States. We have the ability to really watch carefully to see what’s working to apply learnings from one part of the country to another. Ultimately the business response there lies in resilience.”

Sean Dell’Orto, CFO, Park Hotels & Resorts
“Group revenues are anticipated to be down 95% in the third quarter, and we are assuming a similar decline for the fourth quarter as events continue to be canceled. That said, more than 20% of this year’s group cancellations have already rebooked into future years with another 30% in the pipeline.

“About 20% to 21% of room nights that were canceled in 2020 so far rebooked into later years. About half of that has been rebooked into ’21 and ’22. … Ultimately, we’re taking a wait-and-see approach. (Group rebookings are) going to be a good tailwind for everybody when the vaccines come through.”

Jeremy Welter, COO, Ashford Hospitality Trust
“We are working diligently to collect cancellation fees or partner with group customers to rebook their programs for a later date. Our hotel has participated in Hilton’s Frontline program and Marriott’s Rooms for Responders and Community Caregiver rates. We have registered hotels with FEMA, CLC, Hotels for Hope, state lodging associations, and California’s hotels for healthcare workers. We’re actively seeking how we can best partner with local and city groups to help in our communities and provide shelter for first responders and vulnerable populations. Additionally, our focus has been on securing partnerships with long-term projects, airline crews and universities to provide student housing during upcoming semesters.”

Mark Hoplamazian, president and CEO, Hyatt Hotels Corporation
“With respect to group business in North America, we continue to experience near-term group cancellations and expect this to continue over the remainder of this year. All this makes it challenging to forecast results or plan for demand levels, and we are up for this challenge.

“An additional area of focus is the meetings and events experience. While demand for large meetings is limited, we have smaller group events occurring and have been working with meeting planners on new designs for events.

“(In China), we hosted product launches by some key customers of ours, like BMW and Volvo and Gucci, who are launching and holding new product launches and gatherings in our hotels. So we’re also starting to see the return of group. We’re encouraged by this across the board.”

Chris Nassetta,* president and CEO, Hilton
“Intentions (for group travel) keep picking up. … We are doing some group. In the second quarter, 10% of our volume was group. I think it will be higher in the third or fourth quarters, for what it’s worth. But it’s not our typical groups—it’s groups related to the crisis, it’s businesses in small group meetings where they have to meet but their offices aren’t open yet. We are getting a lot of that kind of (business) but … it’s obviously a small fraction of what it typically would be. I do think it will keep picking up … but the traditional bigger group meetings that are bread and butter in the fall, those are going to keep getting kicked out. A bunch of them are still on the books for the rest of the year, but I think a lot of that will wash out.

“Where it starts to stiffen up a bit is starting in Q2 of next year. … The core sort of traditional group business is going to kick forward to Q2 through Q4 next year. We are both moving business that is canceling—we are moving every bit we can to a future date—and we are booking new business. We are booking tens of millions of dollars a week of new business for periods in the future, most of which is starting in the second quarter next year.”

Bill Hornbuckle, president and CEO, MGM Resorts International
“We’ve launched just over 2 million group room nights—83% give or take, have been in 2020. As you probably heard, CES (Cosumer Electronics Show), trickled into the first quarter, so we’re losing some activity in the first quarter. Flipside of that and why I am fundamentally solid on our business is that we’ve only lost two groups of substance beyond the first quarter of next year. What groups are saying and what they’re doing is they’re hanging in as long as they possibly can. Fundamentally they want to come back. They understand this experience; they want and need it. We’re ideally positioned given our scale, with 3.7 million square feet of space to spread groups out and make a meaningful opportunity for them as they think about coming back. But the short-term, it’s going to be challenging.”

Jon Bortz, chairman, president and CEO, Pebblebrook Hotel Trust
“Leisure-transient should be the first to recover, then business transient, then small groups, then larger groups, and city-wide (events). We thought group would be the hardest hit, and most of it would not likely return anytime this year without an effective health solution. In fact, we indicated that we counseled our property teams to assume that none of the group on the books would materialize, and they should plan and staff accordingly. We were uncertain when government restrictions on gatherings would moderate. Most state and local governments indicated that large gatherings would likely require significant health advances before being allowed. And even if allowed, how willing would individuals be to congregate in large groups with physical distancing and other requirements like mass and testing?”

Sébastien Bazin, president and CEO, Accor
“Business is the segment in which we have the most unknowns, and that will continue at least until summer 2021, and we know as a fact that we will never come back to that of 2018.”

Geoff Ballotti, President and CEO, Wyndham Hotels & Resorts
“Our business is fueled by leisure travelers representing 70% of our bookings. Yet the other 30% coming from guests for whom travel is essential to their job is predictable and dependable. …

“It’s important to note that our leisure mix does not change dramatically from quarter-to-quarter.

“Less than 1% of our franchisees room nights are generated by group business and we are no more reliant on corporate or contracted business in the third and fourth quarters than we are in the second quarter. In 2019 leisure made up 70% of our business in the second quarter, 71% in the third quarter and 69% in the fourth.”

Keith Barr, CEO, InterContinental Hotels Group
“It’s hard to Zoom yourself on a holiday, difficult to Teams your way to a conference. I do not think this is the end of business travel. Also, there is a lot of business travel that is not discretionary. No one has a material view on this, but I am confident. After 9/11, many people said they’d never get on planes again.”

*Editor’s note: Hotel News Now is a division of STR, a CoStar Group company. Chris Nassetta serves on CoStar Group’s Board of Directors.

1 Comment

  • Steve Samuels August 17, 2020 12:40 PM Reply

    The earliest any meaningful group business will return is the fall 2021 and more likely mid 2022. Lets assume a vaccine is widely available in January 2021. It will take months before companies begin to schedule group events let alone conferences. In fact, these meetings require advance preparations and logistics. The simple math puts this out to the fall of 2021 assuming all companies begin to schedule events beginning in Feb/Mar 2021. All these stocks are priced to a best case scenario regarding a timely vaccine and a corresponding quick return to travel. This is just not realistic.

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