Hotels Offer Discounted Gift Card Deals to Raise Cash – Will It Work?

Small hotel owners can’t afford to wait on the government to dig out from decimated travel demand.

Many hotel operators qualified for the $350 billion paycheck protection program under the $2 trillion coronavirus relief fund passed in late March. But the depleted program, even with a $320 billion replenishment signed into law on Friday, isn’t a reliable stream of income for cash-strapped hoteliers.

Small businesses have been shut out of the program due to technical issues or difficulty in finding a lender to process their application. While hoteliers wait for word from the bank, some have to find creative solutions to pay down debt.

“We’re holding off on paying some bills until our PPP loan comes in,” upstate New York hotelier Gregory Henderson said. “Everything is a juggle right now.”

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Henderson and his husband Joseph Massa co-own the popular Roxbury Motel in Roxbury, New York. The boutique hotel in the Catskills draws visitors from New York City and beyond to its contemporary rooms as well as those themed for throwback television shows like The Flintstones and Bewitched. Given their success and several expansions to the Roxbury, Henderson and Massa spent five years building up the road their second hotel, the Roxbury at Stratton Falls.

It opened weeks before the spread of coronavirus effectively shut down the U.S. travel industry, and now Henderson and Massa are pursuing any available avenue to make sure their new hotel survives.

“When this first started, it was about the basics. If everything is shut off, how will we make our colossal debt service from opening this new hotel and pay other things?” Henderson said. “Anything you do that the government is helping you with is still more debt. For people like us that just took on so much new debt, there was already no room for that.”

Bonds, Bailouts, and Uncertainty

While he applied for a PPP loan as well as an Economic Injury Disaster Loan, Henderson discovered last week how hotels around the world are offering “bonds” to generate short-term capital.

The Roxbury at Stratton Falls co-owners Gregory Henderson and Joseph Massa

Programs like “Buy Now, Stay Later” offer $100 hotel bonds that mature after 60 days to $150 and can be used for a hotel stay at properties like the Yotel in Boston. Hotel operations company Porter & Sail offers hotel credits, a program where a $200 purchase gives buyers $300 to use at hotels like Hotel Villa Flori on Italy’s Lake Como and Bisma Eight in Bali. Henderson and Massa decided to launch their own program, “We’re Giving 150%,” where guests get 150% of the value of any gift card they buy.

The Roxbury hotels normally take a deposit equal to a one-night stay when guests make a reservation, and those deposits help cover expenses through off-peak times of the year. With so much uncertainty on when restrictions will lift and what the travel recovery will look like, guests have started to cancel their summer stays at Henderson’s two hotels.

“Up until about two weeks ago, people were holding out. Now it’s like my worst fears are coming through,” he said. “Some have rebooked for 2021, thank God, so we just hold onto their deposits and they reschedule. But a lot haven’t and, I’ve worked on training the two people I have answering the phone to not plead but to maybe do what I wouldn’t have done in the past and give a matter-of-fact explanation of the reality we’re in and appeal to people’s kind side.”

Henderson and Massa have worked through their website and social media channels to get the word out to guests of the gift card program. They have sold about 100 gift cards totaling around $15,000 so far.

“It’s certainly not enough to handle the six figures of deposit exposure we have for the summer,” Henderson said. “But it will enable us to make payroll this week and enable us to pay some of our outstanding items from March.”

Buy Now, Shortfall Later?

Nothing is off the table when it comes to hotel cash preservation and revenue management during the coronavirus, but that doesn’t mean everything will work.

The U.S. hotel industry is expected to have its worst year on record for average occupancy, according to an American Hotel & Lodging Association report out this week. While the hotel bond and discounted gift card programs are popular for smaller operators, some analysts question how effective they can be compared to traditional options like deferring loan payments.

“You have all the debt mechanisms that are searching for a way to push debt as far back as they possibly can,” LW Hospitality Advisors Chief Operating Officer Evan Weiss said. “But I’m not too sure on outside-the-box thinking at this time. People simply aren’t traveling.”

As coronavirus wreaked havoc on the travel industry and decimated occupancy rates, reducing payroll and debt service obligations were some of the first moves from hoteliers around the world. Hilton pre-sold $1 billion in loyalty points to American Express, a move aimed at generating enough liquidity to get the global hotel giant through the coronavirus crisis.

But finding ways to generate revenue are still limited to smaller companies.

“It’s not like you’ll induce demand by lowering rates,” CBRE Hotels Director of Research Information Services Robert Mandelbaum said. “You have to figure what’s out there and what can you accommodate.”

Henderson admits the gift card and hotel bond programs aren’t silver bullets in restoring the travel industry to what it once was and establishing strong balance sheets. But cash is king at the moment, and operators like him need to access it in any way they can. He and Massa are still waiting on their PPP and EIDL applications to clear.

“Looking at spreadsheets and forecasting, sure, there is a worry of what position we’re put in if we do too much of this and then the whole summer has a gift certificate,” Henderson said. “But that’s all out the door for now. We need the income.”

If Henderson can find a silver lining to all the depleted occupancy and uncertain future, it is the growing consensus that travelers will likely flock to drive-to locations before hopping on a plane. Given the Roxbury hotels’ location, about three hours from New York City and four hours from Boston, Henderson and Massa are at least comforted that they stand to benefit from pent-up travel demand in their own highly populated region.

“I know we’re on people’s minds to get away, and that’s literally all that’s keeping me going,” Henderson said.