Hotel analyst answers what everyone is asking: ‘how bad is it?’

By: Jayson Derrick
Jayson Derrick
Jayson lives in Montreal with his wife and daughter, loves watching hockey, and is on a lifelong quest to… read more.
on Sep 24, 2020
  • The hotel industry remains among the most impacted industries amid COVID-19.
  • Notable analyst Tuna Amobi isn't expecting a recovery until the back half of 2021.
  • Major chains face no current liquidity issues, the analyst said.

Not one to beat around the bushes, “Bloomberg Surveillance” host Tom Keene has a simple question for hotel and hospitality analyst Tuna Amobi: “how bad is it?”

‘Eye of the storm’

The global COVID-19 pandemic ushered in a near global-wide shutdown of travel and this put the hotel industry in the “eye of the storm,” Amobi, an analyst with research firm CFRA said. It goes without saying that the group was put in a situation that no one would have been able to predict.

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Many are trying to navigate through this unprecedented disruption but any expectations for a sustained recovery aren’t expected until the second half of 2021, the analyst said. In the meantime, investors may want to taper their expectations as it will take six to 12 months until after a vaccine is available to imagine “any semblance of a recovery.”

No liquidity problems

Hotels are bleeding cash today as occupancy rates remain at depressed levels. But many companies are taking the necessary steps to mitigate the liquidity pressures. Global chains like Hilton Hotels Corporation (NYSE: HLT) and Marriott International Inc (NASDAQ: MAR) raised additional debt, cut dividends and share buybacks, and lowered their capex plans.

“We really have no major liquidity constraints,” he said.

However, smaller rival chains, including lesser-known brands and mom-and-pop owned businesses are certainly “getting squeezed.”

The hotels and hospitality industry got “nowhere near” the level of financial aid and assistance that airliners received from the U.S. government, he said. This is due to the franchised business model of the hotel industry as individual franchisees were responsible for applying for aid. 

American Hotel & Lodging Association President and CEO Chip Rogers separately shared a dire sentiment during a Fox Business interview. According to his estimates, 68% of hotels won’t be able to survive the next six months at current occupancy levels.

InterContinental Hotels Group (LON: IHG), as an example, reported in late June a 76% decline in average room revenue in the prior month.

What post COVID looks like 

Prior to the pandemic, the hotel industry as a whole has shown “relatively modest” supply growth despite growing demand, the analyst said. The pandemic has now forced major chains to pull back on their prior growth plans and investors should expect limited to no supply growth for the near-term.

It won’t be until hotel chains are comfortable with the demand environment for them to start accumulating new properties and assets.

The hotel industry could also undergo a period of rationalization, especially among franchisees that no longer have adequate liquidity to endure many more months of disruptions.

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