The bailout of the hotel Industry won’t be the same for all hotels

by admin on March 25, 2020

The ground zero of this crisis is indeed the leisure and travel industry, but not all leisure and travel companies will navigate this crisis in the same way. Most likely, publicly traded companies will get government aid first, and non-listed companies will get help later if any at all. This is an unintended consequence of how the hotel industry is structured in the United States. According to Smith Travel Research (Smith Travel Research, 2015) in North America, 67% of hotels are branded, while 33% are not. Branded hotels are collectively organized, so they can easily reach out to the government for help, something that independent hotels will find very hard to do. Bridgewater estimates that the revenue drop in the travel and leisure industry in 2020 will top $199 billion for listed companies, and a whopping $920 billion for non-listed companies; this includes independent hotels, independent tour operators, independent travel agencies, etc. (Jensen et al., 2020). It is very unlikely that the financial resources from a  government bailout will make it to these companies, in the same way, they will make it to listed publicly traded companies such as Hilton or Marriott; unfortunately, the funneling channels that allow these operations are limited, and the institutional representation of these companies in front of the government is very weak, if non-existing. This situation will delay or prevent these companies from accessing bailout resources, at least initially, and at the exact moment when they need it the most. 

Companies like Hilton are very likely to receive financial help from the bailout first, but companies down the chain or in related industries may not have the same fortune. Bridgewater found that the financial system is less likely to crack as it did in 2008, even though they hold a third of the implied losses from the economy during this crisis. If the leisure and travel industry collapses, it will threat the financial system and will have immediate consequences in other economic sectors. One in eight non-farm jobs are supported by travel in the United States. A crisis in this sector will ripple through the whole economy in a variety of industries. At that point, the government will be forced to either expand the scope of the bailout o let some of these companies go bankruptcy. 

After the crisis, Hilton and Marriott would emerge as big winners, while independent hotels would be the brink of collapse or financially stressed. Hilton and Marriott will see a flow of independent hotels looking to join established brands and minimize the downsize in situations like this. If there is something certain is that after this crisis, not all hotel companies will emerge as they were, undoubtedly the big winner after everything is set and done would be mostly Hilton.

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