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04/14/2020

Hospitality's Response to COVID 19: A Phantom Menace

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Episode I

THE ATTACK OF THE PHANTOM MENACE

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The above scroll is not a trailer from a new Star Wars movie. It is, however, in this time of COVID-19, a reminder how "Life imitates art far more than art imitates life."  

Episode I, the first of three in this series of articles, is meant to articulate how badly things could get for our hotel and restaurant industries before we eventually come out of this crisis.

(Disclaimer: Things are moving quickly so by the time this article is distributed some data may be outdated.)

“MAYDAY! Bogie of Unknown Origin Entering Earth Atmosphere”

I have heard COVID-19 compared to both Pearl Harbor and September 11th. Why? It caught the nation off-guard, a “sneak attack” if you will. While shocking to realize that the U.S.A. has some of the highest casualties and has been ill prepared to deal with the far ranging needs of those fighting on the front lines, it is time to realize we are at war with a vicious enemy that kills indiscriminately and is capable of destroying a cherished way of life.

But Americans are nothing if not resilient! We will survive this too. However, the road to recovery could be long and arduous, especially for our hotels and restaurants. Before tackling how these two industries can begin to recover, let’s take a look back in history to the Great Recession for a reminder of how we have come out strong on the other side economic upheaval.  

Back to The Future

Reviewing data from the Great Recession of 2007-2009 will help us better understand the potential impact COVID-19 will have on our economy. The table below casts a spotlight on the shocking fact that the economic failures caused by poor financial sector practices in 2007-2009 pale in comparison to what COVID-19 has with blinding speed brought upon the U.S.A. in only a few weeks.

THE GREAT RECESSION VERSUS COVID-19 PANDEMIC

Comparable Factor

Great Recession

COVID-19 Invasion

Crisis Period

Dec 2007 and Jun 2009

Jan 2020 to ?

Cause

Several Factors, Mostly Related to Bad Housing and Banking Industries Practices

Worldwide Pandemic Related to Misinformation Source Country of Pandemic, China, Reported

Subsequent Effects on Economy-Life

Devastated U.S. and European Economies

Projected to Kill Millions and Devastate Economies Worldwide

Workforce Layoffs 

Skyrockets From 5% in 2007 to 10% By October of 2009

May Reach 47 million layoffs. 16.8 million workers have sought benefits in just two weeks (March 23-Apr 10)

Unemployment Rate

Nearly 9 million lost jobs from 2008 to 2010

 

Coronavirus economic shutdown could send the unemployment rate past a mind-boggling 32%. Trending suggests Hospitality jobs will be among worst hit

Cause Economy Goes into Deep Freeze

The Fed Reserve's inability (or failure) of regulating the financial sector, the financial institution's risky behavior (especially in regard to unadvisable mortgage lending), and an exuberant amount of borrowing by consumers or corporations without regard to the financial implications

Economy comes to a standstill after a national measure put in place to close all non-essential businesses and nation asked to stay at home to slow the spread of COVID-19  

 

Sources: The Street, Washington Post and St. Louis Fed

 

Consequences of COVID-19

Specific to National Interests:

The following string of disastrous results are the outcome of the “Deep Freeze” the national economy went into after the government was forced to declare a national health emergency and close all non-essential businesses and temporarily force the entire nation to stay home until May or June:

  • In just two weeks all the jobs created in the past five years have been nearly erased.
  • In spite of the $2.2 trillion COVID-19 Stimulus Package (CARES Act), rushed to backstop millions of people who no longer have any source of income, relief will for them will not arrive for weeks to months due the sheer magnitude of claim processing.
  • The economic impact of the coronavirus has literally overnight placed homeowners and small businesses in jeopardy of being unable to paying for their home and business mortgage payments and making payroll.
  • In March, more than 10 million Americans lost their jobs and applied for government aid, according to the latest Labor Department data, which includes claims filed through March 28. Many economists say the real number of people out of work is probably even higher, since a lot of newly unemployed Americans haven’t been able to fill out a claim yet.

Specific to Hotel/Restaurant Industry Interests:

HOTELS

As reflected in the below STR Outlook Table, COVID-19 has stopped cold 11 years of unprecedented growth in the hotel sector.

“There is no sugarcoating it: the coronavirus has induced panic across the globe, throwing markets into chaos, postponing conferences, stamping out travel and emptying drugstore shelves. It’s still early, but the impact has been swift and pernicious for the hospitality industry as travel has come to a standstill, drying up occupancy and throwing a wicked curveball to revenue and accentuating expenses, which in turn will cast a pall over hotel bottom lines.  The virus is here, and it’s doing what viruses do: invading and infecting. The hotel industry is and will continue to take a beating for the foreseeable future. But there is a bright side: This will end. Let’s be clear: The hotel industry was due for a correction, and though this is not the soft goodbye everyone hoped for, it’s the adios we’ve been given. Yes, it will hurt, but people will travel again, companies will hold meetings and conferences will floor.” Source: Hotstats

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RESTAURANTS

Restaurant staff make up 10% of the US work force or about 15.6 million employees. To date more than 3 million workers have been laid off. April sales alone are down $60 billion. The reality is: the longer things remain closed, (44% of all restaurants are already temporarily closed) the more unlikely it will be for many restaurants to reopen.

Summary:

If the nation experiences unemployment as high as 32% and millions of Americans cannot make mortgage/rent, utility or other necessary payments, then it goes without saying that spending on non-essentials (like hotel stays and dining out) will be even more dramatically affected. It is going to take the concentrated effort of all involved to not only bring an end to a prolonged downward cycle, but also to begin a new one that will reverse the downhill slide the hotel/restaurant industries are presently experiencing.

But there is reason to hope.

Return next week for Episode II: The Hospitality Industry Strikes Back

    About the Author

    Russ Dazzio is Chairman & Founder of R&R Global Hospitality. During a career that spans over forty years he has earned a reputation as a Hospitality Industry innovator who has successfully navigated numerous economic downturns including, “The Great Recession of 2007”. He serves on the Advisory Boards of; Hospitality Technology Magazine, The UNLV College of Hospitality and The Hardy Group Radical Innovation Award Competition.