The Impact of Covid on the Hospitality Industry

Since the World Health Organization declared the Covid outbreak to be a global pandemic on March 11 of this year, domestic and international travel has drastically declined. Among the sectors impacted by the border closures, travel restrictions, and visitor quarantine measures throughout 217 countries, the airline and hotel industries have been most heavily affected by the economic shutdown. The restrictions initially began due to widespread general social limitations but have infiltrated every corner of the American economy (Lee). Of the $8 trillion globally produced by tourism in 2018, the United States generates the largest portion at $214.5 billion. As we enter the peak season of leisure travel, mid-June through August, it is evident that the US is vulnerable to losses if the restrictions and regulations persist on the tourism industry (Quinn).

With Covid cases constantly rising around the world, the International Civil Aviation Organization forecasted a reduction of 503 to 607 million passengers around the world (ICAO). Even after a $25 billion bailout from the US Treasury Department, US airlines remain stunted due to a larger than 50% decrease in passengers. According to the US Travel Association, total visitors to the US are forecasted to decrease by 63.5%, while domestic US flights are expected to decline by 29.6%. This sudden halt in air traffic has caused the average airline fare within the US to drop by almost 30% since June of 2019 (US Travel Association). As ticket prices and passenger counts plunge, revenue streams, which have been strong since the recession in 2009, are drying up (Statista). To combat the growing revenue losses, US airlines are enacting additional precautions on all flights. The goal is to give passengers the confidence to fly again. American Airlines and JetBlue announced new precautionary measures, such as taking all person’s temperatures before they board, social distancing passenger seating, and pumping more fresh air into the cabin. JetBlue has also proposed a restriction that prevents passengers from occupying the middle seat within each aisle (Passy). 

Given the current situation with major US airlines, adding stricter guidelines and regulations will slow down economic recovery, thus driving companies into further debt. On April 30, American Airlines released its 10k earnings report. To shareholder dismay, American Airlines announced a net operating income loss of $2.2 billion, a year over year decrease of 19.5%. To add to American’s troubles, the company increased long term debt by 4.38%, and cash on hand declined 17.14% since quarter one of 2019 (American Airlines Group). Without the proper cash to outfit all planes with Covid-safe measures, it could be months until American Airlines’ fleet is running at full capacity. Likewise, guidelines for cleaning and social distancing have been imposed upon the hotel industry. 

Among businesses in the hospitality industry, hotels have been one of the most deeply impacted by Covid. Increased cleaning efforts and new sanitation staff members add to the burden that hotel payrolls comprise. US State and local tax revenues payable by hotels in the wake of Covid are predicted to decline by $16.8 billion by the end of 2020. Not only are big businesses affected, but state and local governments are also feeling the brunt force of the lack of tax revenues. Before Covid struck the US, the hotel industry held 4% of all US jobs and contributed $660 billion to the annual US GDP (Hotel Business). According to Hilton Hotels Corporation’s 10k released in April, net income dropped almost 90% since quarter one of 2019. Hilton is a loyalty program hotel, determined to  keep as many locations open as possible. Almost all current hotel customers have been truck drivers, family members of Covid patients, and frontline medical workers. Hotels, including Hilton, are now offering discounts to medical staff. With a reduced amount of regular hotel customers, hotels have seen shrinking revenues since the pandemic began. Hilton Hotel Corporation currently sits at $73.19 per share, down almost 35% since December 2019. Hotels, and the whole hospitality industry, experienced rapidly decreasing stock prices from late February to early April, but prices are holding steady as onlookers wait and watch for the future of the coronavirus pandemic (Whitmore).

As the US begins to reopen along the guidelines set within each state, the hospitality industry could have a large impact on the rebound of the economy. As cases per state begin to decrease, tourists will gain the confidence to travel, seeking the services of hotels and airlines. 

As summer continues, the hospitality industry will play a large role in the resurgence of the economy and our view of the ‘new normal’ as we break through the toughest part of the pandemic.

Works Cited:

American Airlines Group, Inc. “American Airlines Group Reports First-Quarter 2020 Financial Results.” AA 10K, "GlobeNewswire", 30 Apr. 2020, www.globenewswire.com/news-release/2020/04/30/2025125/0/en/American-Airlines-Group-Reports-First-Quarter-2020-Financial-Results.html.

Hotel Business. “Report: $16.8B Loss in Tax Revenue From Hotels in 2020 Due to COVID-19 Impact.” Hotel Business, 19 June 2020, www.hotelbusiness.com/report-16-8b-loss-in-tax-revenue-from-hotels-in-2020-due-to-covid-19-impact/.

Mazareanu, E. “Total Operating Revenues of the U.S. Airline Industry 2004-2019.” Statista, 5 May 2020, www.statista.com/statistics/197680/total-operating-revenues-in-us-airline- industry-since-2004/.

Passy, Jacob. “Airlines Must Take Extreme Precautions to Keep Passengers Safe, Experts Tell Congress.” MarketWatch, MarketWatch, 25 June 2020, www.marketwatch.com/story/airlines-will-need-to-take-extreme-precautions-to-keep-passengers-safe-2020-06-23.

Quinn, Colm. “The Tourism Industry Is in Trouble. These Countries Will Suffer the Most.” Foreign Policy, Forbes, 23 Apr. 2020, foreignpolicy.com/2020/04/01/coronavirus-tourism-industry-worst-hit-countries-infographic/.

Suau-Sanchez, Pere. “An Early Assessment of the Impact of COVID-19 on Air Transport: Just Another Crisis or the End of Aviation as We Know It?” Science Direct, June 2020, www-sciencedirect-com.ezp1.villanova.edu/science/article/pii/S0966692320304841?via%3Dihub#bb0100.

“Travel Price Index.” US Travel Association, 2020. https://www.ustravel.org/system/files/media_root/document/Research_Travel-Price-Index.pdf

Whitmore, Geoff. “Are Hotels Still Open During COVID-19?” Forbes, Forbes Magazine, 22 Apr. 2020, www.forbes.com/sites/geoffwhitmore/2020/04/19/are-hotels-still-open-during-covid-19/#7e111cb192a7.

YenNee, Lee. “5 Charts Show Which Travel Sectors Were Worst Hit by the Coronavirus.” CNBC, CNBC, 6 May 2020, www.cnbc.com/2020/05/06/coronavirus-pandemics-impact-on-travel-tourism-in-5-charts.html.