Hard-Hit Travel Industry May Receive Government Aid to Counter COVID-19 Losses
Posted on: March 17, 2020, 07:10h.
Last updated on: March 17, 2020, 10:32h.
The US travel sector is “increasing likely” to receive federal financial assistance given continuing losses from the coronavirus outbreak, according to multiple experts. But many warn it is not clear where hotels, especially large ones, may rank in worthiness.
Airlines and possibly cruise lines are seen as the most deserving. Hotels are vying for assistance, too.
Stephen M. Miller, director of UNLV’s Center for Business and Economic Research, told Casino.org, “Some assistance is probable. I think that airlines and cruise companies probably come in line ahead of hotels.”
Will the Trump administration and Congress approve funds to help hotels in Las Vegas? “Smaller hotels face more risk of bankruptcy than large hotels, say on the Strip,” Miller explained. “For these large hotels, their suppliers face the risk.”
“Credit lines are needed to bridge the gap of down time due to the virus,” Miller advised. The Small Business Administration is seeking to provide low cost financing to smaller businesses which are in the large hotels’ supply chain, he added.
Miller also pointed out that the Federal Reserve lowered short-term rates to close to zero to boost liquidity provided by banks. Quantitative easing of $700 billion is also key to inducing more bank lending.
Hotels, large and small, are facing tough times. For instance, MGM Resorts International and Wynn Resorts both temporarily closed Las Vegas operations this week. Before the closing, Wynn CEO Matt Maddox revealed a likely occupancy rate at the Wynn Las Vegas in the low teens.
If not closing, casinos are restricting gaming floor activities and entertainment, too. Hotels nationwide have lost business travelers and tourists.
Major conventions and meetings also have been cancelled. For instance, the National Association of Broadcasters recently called off its Las Vegas convention that was likely to attract some 100,000 attendees.
“It appears increasingly likely that the federal government will step in to help the various sectors of the hospitality industry as well as the airlines,” Mikael Ahlgren, director of Gaming Initiatives at Penn State University, told Casino.org. “The support is likely to come in various forms, including direct payments as well as various loan programs.”
Fragmented Hotel Industry
When asked for his insights, Michael Bellisario, director of equity research and senior analyst at Baird, told Casino.org that, “One complicating factor for hotels is that the industry is fragmented.”
“For example, a property could be owned by a hotel REIT [real estate investment trust] which franchises the Autograph Collection brand from Marriott, and the owner employs a third-party management company to operate the property,” he said. “Are all the groups’ incentives aligned? Who is most/least at risk? Who leads the charge to push for government assistance?”
But when it comes to the airlines, “the opposite is true. Southwest owns/leases its planes, the employees are Southwest employees, the scheduling and revenue management is all done by Southwest, etc.,” Bellisario said.
Government Cannot Rescue Every Sector
One other travel sector expert urges caution. “Given the magnitude of the economic impact of this crisis, it’s unlikely that the federal government has the resources to rescue all of the industries impacted,” Chris Roberts, a professor at DePaul University’s School of Hospitality Leadership, told Casino.org. “Airlines play a vital role in our transportation network and are likely to be viewed as more critical in terms of need over most other industries. Energy production will, too.”
I suspect the federal government will be very limited in terms of its ability to help lodging or cruise line firms,” Roberts said. “The overall scope of the economic impact is staggering. It’ll likely take consumer confidence a year or more to rebuild to the point of confidence in travel and tourism.”
Airlines for America (A4A), an industry trade organization, is looking for $50 billion through grants, loans, and tax relief for the sector. Another $8 billion has been proposed to help the air cargo industry. The requests may find a favorable response.
“We’re going to back the airlines 100 percent,” President Trump said at a news conference Monday. “We have to back the airlines. It’s not their fault.”
Airlines were given a $15 billion financial aid package following the Sept. 11, 2001 terrorist attacks. So, there is a model for sector support.
Mikael Ahlgren explained that when it comes to aiding the airlines, “There exists a bit of a template from 9-11. But it appears likely that this action will require a more drastic approach.”
“I suspect that it is likely similar programs will be tailored to support the hotel and casino industry. While 9-11 resulted in a relatively orderly V shaped recovery in Las Vegas, this crisis has the potential to result in a more challenging trend-line,” Ahlgren said. “As such, one would hope that the federal government provides support that encourages operators to resist laying off workers.”
Wynn Resorts has promised to continue to pay full-time employees,” Ahlgren added. “However, if the closures extend beyond a few weeks, it is likely that without federal assistance, policies regarding labor expenses, which are so significant in the hotel, restaurant and casino industry, will have to be revisited.”
Anthony Cabot, Distinguished Fellow in Gaming Law at UNLV, further told Casino.org that any federal aid “to the hospitality industry likely would come in the form of long-term loans with very low interest rates.”
Congress is likely to consider aid for the travel sector soon. In a statement to Casino.org, US Sen. Jacky Rosen, D-Nevada, said, the impact the coronavirus outbreak is having “in our communities, including Nevada’s tourism economy, are very concerning.”
“I am … in contact with local stakeholders across the state and am working to ensure that all of Nevada’s industries, including travel and tourism, and our workforce are not left behind as Congress puts together legislation to help our businesses and workers during this difficult and uncertain time,” Rosen added.
Many Hotels Are Small Businesses
Nationally, the American Hotel & Lodging Association (AHLA), said that 61 percent of US hotels are small businesses.
Last week, Brian Crawford, executive vice president of government affairs for AHLA, said, “our small business owners are projected to be operating in a negative cash-flow position in terms of their expenses and debt,” according to Hotel News Now.
AHLA wants hotels to get access to capital, liquidity, and increased credit markets, Crawford said. Other proposals are debt forbearance and flexibility for loan options, as well as a stimulus package.
As far as cruise lines, Trump is somewhat sympathetic to their financial situation. But several Democratic senators appear less supportive, Roll Call reported.