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Hotel Owners Face Reality of the Spreading Coronavirus Outbreak

After weeks of event cancellations and corporate travel restrictions, hotel operators are cutting expenses.

(Bloomberg)—The hotel industry is waking up to the adverse effects of the coronavirus.

After weeks of conference cancellations, corporate travel restrictions and cratering stock values, lodging owners are pulling guidance and cutting expenses while the spread of the virus socks hotel demand. The shift in tone comes after the largest companies in the industry initially pushed the idea that the impact from the outbreak would mainly be confined to operations in Asia.

Ryman Hospitality Properties Inc. -- which owns large conference hotels as well as the famous country music showcase Grand Ole Opry -- pulled its forecast for 2020 on Sunday evening under a deluge of cancellations that make past shocks to the hospitality industry look tame. Pebblebrook Hotel Trust followed suit on Monday, saying that escalating cancellations from groups and business travelers have made it unlikely that the company will achieve its first-quarter and full-year projections.

“I’m very surprised at this point that others have not,” said Patrick Scholes, an analyst at Suntrust Robinson Humphrey Inc. “Historically, this has been an industry that has been highly reluctant to take down their numbers or talk negatively about trends unless their feet have been held to the fire and it’s painfully obvious they have no choice.”

Starting when Hilton Worldwide Holdings Inc. reported earnings on Feb. 11, hotel companies described the coronavirus as a minor drag on earnings, focusing mainly on travel in and out of China.

Even as the outbreak spread to Europe and the U.S., hotel owners and brand companies described narrow effects -- like lower spending by Chinese tourists at American hotels.

“We would expect this will be messy for the next few weeks, if not maybe the next few months,” Marriott International Inc. Chief Executive Officer Arne Sorenson said on a Feb. 27 earnings call. He added that when the outbreak ends, consumers will regain confidence and “travel will come back and it will probably come back fairly quickly.”

Investors were not assuaged. Marriott shares slipped 24% over the past month through Friday, in line with competitors Hilton and Hyatt Hotels Corp. The S&P 500 has declined 11% over the same period.

Hotel companies plunged on Monday in New York as the stock market was once again battered by the virus outbreak.

Hyatt pulled its guidance on March 2 due to “uncertain consumer demand,” but most companies could still point to solid industry performance. Occupancy at U.S. hotels declined just 1.7% in the last week of February, compared with a year earlier, according to lodging data provider STR.

Now, in the face of the spreading outbreak, the industry is beginning to acknowledge the financial hit. Ryman said that about 77,000 room nights were canceled during the week that ended Mar. 7, accounting for an expected $40 million in lost revenue in March and April. By comparison, the company saw 122,000 cancellations in the first three months of 2009, during the peak of the global financial crisis.

Ryman said it still has enough business on its books for the rest of the year, but that the uncertainty regarding future cancellations led to it to pull the forecast. The company, which owns more than 10,000 rooms and 2.7 million square feet of meeting space, said that it’s working to lower expenses in the face of lower short-term revenue.

It has also “elevated the cleaning and sanitation procedures” at its properties according to a statement.

To contact the reporter on this story: Patrick Clark in New York at [email protected].

To contact the editors responsible for this story: Craig Giammona at [email protected]

Christine Maurus

© 2020 Bloomberg L.P.

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