Many hotels won't come back from coronavirus shutdowns, but the downturn in travel won't last forever. It is a shrewd business strategy to plan for future growth, if you can stomach the short-term occupancy meltdown.
Coronavirus shutdowns can be a chance to recalibrate and accelerate new hospitality business strategies.
Travel restrictions and cratered demand shuttered hotels across the U.S. beginning in mid-March. But if operators can move beyond suspended operations and tanked revenue, the shutdowns can also present opportunities.
The chief executives of timeshare company Wyndham Destinations and extended stay brand AKA Hotel Residences, in separate interviews with Skift, both said they used the downturn in travel to plan for future growth coming out of what is expected to be the worst year on record for the global travel industry.
“Amid all the craziness going on, I think it’s going to be three giant steps forward for the AKA brand,” said Larry Korman, president of AKA Hotel Residences. “Our time has come.”
AKA’s upscale properties, in markets like New York City and London, are designed for travelers looking for a week to month-long stay. Of the 12 hotels in the company’s portfolio, the three that temporarily closed were properties that focused more on nightly stays compared to longer reservations, Korman said.
The extended stay sector has been the strongest-performing hotel sector for the duration of the coronavirus crisis. Extended Stay America, which didn’t have to close hotels when so many other hotel companies did, even attracted investments from Blackstone and Starwood Capital Group due to its strength amid the pandemic.
Korman anticipates travelers will look for more extended stay or serviced residence options coming out of the downturn as a way to have greater control over their accommodations. If he’s right, that could be a boon for AKA.
“A serviced residence or extended stay model has more consistency, more continuity. There is less cost associated with it,” Korman said. “I think partners and operators are looking to give up some of the high highs to avoid the low lows.”
The company focused on deep cleaning its properties during the downturn in travel and rolling out, like many major hotel brands, a heightened health and cleaning standard.
But the company also plans to make a play on hotel operators and buyers. AKA’s focus on longer stays means fewer guest turnarounds and cleanings, which cuts down on cost.
It may seem difficult to imagine growth the same week analysts estimate as much as 20 percent of New York City’s hotel supply could permanently close from coronavirus downturns in travel, as the Wall Street Journal reported. But Korman estimates there is plenty of capital waiting to get into a reimagined hospitality industry.
“I think there are going to be a lot of hotels that go up for sale, and there is a lot of money on the sidelines,” he said. “People are going to buy those and want to partner with someone who can mitigate their risk,” he said.
The New Timeshare Traveler
The early recovery trends in travel should be good news for Wyndham Destinations.
Drive-to, leisure destinations are expected to return before business and fly-to markets. Beach markets like Myrtle Beach, South Carolina, have posted some of the highest U.S. occupancy rates during the recovery from April lows.
The 230 timeshare resorts in the Wyndham Destinations global portfolio focus on many of these travel segments, the company’s CEO Michael Brown said.
Wyndham Destinations spends about $250 million annually on its portfolio, and the company already sees growth opportunities. Vacation ownership and exchange, or timeshare, companies enable flexible arrangements where owners can purchase points to use at resorts around the world.
“When people have been home over the last 90 days waiting to go on vacation, they’re not waiting to go for their two-bedroom unit in Naples in October,” Brown said. “They’re sitting on a currency that says, ‘As soon as I can travel, I can use my Wyndham Rewards points to go.”
Wyndham Destinations suspended operations at its entire resort portfolio due to coronavirus and began to reopen primarily in Sun Belt markets in late May. But the company used the shutdown to accelerate a digitization push that moves check-in out of the lobby onto the front curb from one’s car.
Wyndham Resorts is also giving owners digital wristbands to enable contactless entry to all amenities at a property, among other heightened health and safety standards.
“We recently celebrated our two-year anniversary, and I think we have innovated and made more actual changes in last 90 days than we have in the last two years,” Brown said with a laugh.
Brown expects June to be a “transition month” for business, as the entire portfolio begins to reopen. A summer of 80 to 90 percent occupancy isn’t out of the question, either. Based on how reopened properties in South Carolina and Florida beach markets have performed, he also anticipates occupancy beginning in July through the end of 2020 to be similar to the second half of 2019.
But reopening is only one part of Brown’s job. He is also looking to the future.
More than 20 percent of Wyndham Destinations owners are millennials and prefer urban destinations, Brown said. Empty nesters are also looking for city experiences.
Wyndham Destinations has opened properties in Austin, Portland, and Nashville. The pandemic isn’t changing the company’s rollout strategy for further urban resorts.
“All of those macro trends and the way this industry has evolved, where the branded companies have doubled their market share since the Great Recession, is why [the] timeshare [sector], post-Covid 19, is going to have tailwinds behind it,” Brown said.
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Photo credit: The leaders of Wyndham Destinations and AKA Hotel Residences (AKA Beverly Hills, pictured) think coronavirus shutdowns could spur growth strategies. AKA Hotel Residences