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# 									Resilience in the Time of COVID: The Hospitality and Tourism Sector							

FPC Briefing

Sean F. Hennessey, NYU School of Professional Studies, Tisch Center of Hospitality

Tuesday, February 9, 2021 at 11:30 a.m. EST

New York City, NY

February 9, 2021

## 								Background							

        -  In 2019, the travel and tourism industry contributed over $1.1 trillion to the U.S. GDP and supported millions of jobs. In New York City alone, the restaurant sector accounted for 317,000 jobs in 2019. The COVID-19 pandemic has dramatically impacted the sector, all but bringing business to a halt. This briefing, the first in a new NYFPC series focusing on U.S. economic resilience in the time of COVID, will offer insight into the health of the hospitality and tourism sector, and discuss policies, strategies and prospects for pandemic recovery. 

**NEW YORK FOREIGN PRESS CENTER, 799 UNITED NATIONS PLAZA, 10TH FLOOR**

**MODERATOR:**Good morning, everyone, and thank you for joining today’s briefing.  I’m Stephanie Morimura with the New York Foreign Press Center, and I’ll be your moderator today.  I’d like to welcome you to the first briefing in the Foreign Press Center’s new series, Resilience in the Time of COVID.  In this series, industry experts will discuss how different sectors in the economy have fared and adjusted during the pandemic and also touch on how things might change post pandemic.  

Today’s briefing looks at the hospitality and tourism sector, one of the most visibly hard hit segments of the economy.  Today’s briefing is on the record and will be recorded.  If you have not done so already, please take the time now to rename your Zoom profile with your full name and the name of your outlet.  I also would like to remind you that the opinions expressed by today’s speaker are his own and not those of the U.S. Government or the Department of State.  

Now, let me introduce our briefer for today.  We’re honored to have with us today Sean Hennessey.  He’s the clinical assistant professor at the New York University School of Professional Studies, the Tisch Center of Hospitality.  Professor Hennessey is the founder and chief executive of Lodging Advisors, LLC, and he began his career in the hospitality industry over 30 years ago working in daily operations with companies like Marriott, Disney World, and numerous restaurants.  

He’s a recognized expert in the field and has appeared on CNN Headline News, MSNBC, National Public Radio, Bloomberg News, and was cited by Crain’s New York Business as being one of the nation’s top hotel consultants.  Professor Hennessey will provide opening remarks, and then we’ll open up to your questions.  So please, Professor Hennessey. 

**MR HENNESSEY:**Thank you for that kind introduction.  I am going to share my screen with you so hopefully that appears to everyone at this point.  And this is my first time with the Foreign Press Center so feel free to give me any guidance, Stephanie, as needed as I go along.  But, yes, as she said, the New York City and the world tourism and travel sector has been particularly hard hit.  

Usually when there is a recession, the sectors most immediately affected are airlines, hotels, rental cars, cruise ships – those sectors where the travel decision is made relatively in a short horizon from the actual trip.  So we see that kind of effect going on here as well.  I’m going to present to you some statistics and some information that gives you some context as to the market environment for the hospitality and tourism industry now.  

I will say there is a couple of caveats.  One is that the situation is so fluid that it makes it difficult to talk with great certainty about what to expect tomorrow or next year, and also there’s a lot of different tacks or paths that hoteliers and travel companies may take going forward.  And I’ll talk a little bit more about that as we move through the material.  

The section for the presentation today is rather top down.  I’ll talk a little bit about international economic news which sets the stage for inbound international tourism to the U.S.  Then I’ll talk a little bit about the U.S. itself for domestic travel purposes, and then the New York City economy, the New York City lodging market current trends, as well as some estimates of the forecast going forward.  So at that point I’ll leave it for the – for you all to ask questions. 

On the international economic scene, a couple of weeks ago the IMF came out with forecasts as it relates to the – to GDP growth around the world.  And what we’ve seen is that the emerging markets and developing economies, they’ve been the growth stars over the past decade or so – certainly compared to the advanced economies which are more mature – and following the recovery from the downturn of the pandemic, the expectation is those trends will generally continue.  So that is the anticipation going forward.  

When we look at different economies around the world, we see a lot of variation.  You can see all the way over in the left the economy of China for both ’19 and ’20.  In ’20 it was the only country in the world that registered positive GDP growth.  And even though it’s expected to improve dramatically in 2021, you can see in those black boxes that run along the top, compared to the 2004 to 2007 growth of China, it still is well below the levels it had achieved, as are most of the other economies – the levels they achieved prior to the great recession.  

So we’re seeing that the expectation is throughout the world – at least per the IMF – is that they’ll be a significant rebound in GDP growth next year which only partly closes the gap to where it was in prior years, but at least it’s a good indication of recovery.  The – one of the challenges with this forecast is that as we speak many countries have become more concerned about variants to the COVID strains and are increasing lockdowns rather than continuing to reopen their economies.  So as I mentioned at the outset, this is still a rather fluid situation.  

When we look at the U.S., I had prepared a few slides here just showing what the COVID-19 situation is here.  On the left-hand side, you can see the number of new cases has been decreasing with a noticeable trend recently and that’s consistent with the increased availability of the vaccines.  

On the right-hand side, I prepared a little pie chart that just is designed to give you a snapshot of how the vaccine distribution is working throughout the U.S.  The bright green slice of the pie is people who have received two vaccine shots already, so they’re fully good to go, if you will.  We have about 10 percent that have had one shot and then another 6 percent of vaccines are available for the population over 18 years old such that we’ve roughly vaccinated or are imminently about to vaccinate about 18 percent of the population over 18.  And we need to get about 60 percent of the population over 18 in order to reach the minimum expectations for herd immunity.  So even with the new President’s push to increase vaccinations throughout the U.S., the expectation is that it will take the better part of this year to get the required level of vaccinations that’s going to start enabling people to think about reopening the economy for tourism.  

In the U.S. the economic outlook has been improving recently.  Primarily this is a function of Wall Street’s expectations that the stimulus programs planned by the new Biden administration will generally be a help to the economy such that it should be able to recover a little bit faster than earlier expectations.  The expectations had been strong that there’d be a recovery earlier in the year of 2020 following the downturn, but then kind of leveled off as the economic growth started to stall out and in certain areas go backwards a little bit.  So while there’s still hope for a strong 2021, it’s – a lot is dependent upon the level of support that’s provided by the federal government.

And what we’ve seen in the past, just to put it all in perspective – we’ve talked a little bit about the international economic scene and the U.S. economic scene for New York City – foreign tourists represent anywhere from 15 to 25 percent of the business for the hospitality businesses in the U.S.  The rest would be domestic U.S. demand.  So a significant component of both of those elements requires not only for New York City hoteliers to be vaccinated and ready to offer their services, but for the visitors from around the U.S. and around the world to be vaccinated and feel comfortable and safe traveling.

The Consumer Confidence Index, along with most other indexes of economic and financial activity, it hit a significant downturn in the early months of the COVID pandemic.  It has since seemed to bottom out, where consumers are confident that there will be vaccinations available, there will be treatments that minimize the effects of COVID for those who get it such that we think – there is not an expectation that confidence will deteriorate any further and further postpone any sort of potential recovery in travel demand.

Many locations both within the U.S. as well as internationally have effectively prohibited air travel or significantly limited it, such that the trends we’re seeing now are not really representative of what may happen once people feel it’s safe to travel and the vaccine is widely distributed.  Right now we’ve been running about 10 to 15 percent of normal air enplanement levels throughout the U.S. as based upon TSA checkpoints, so the amount of travel that’s ongoing at this point is certainly very minimal and is unlikely to pick up much until we see a significant improvement in the vaccines and so forth.

Here in New York City we’ve lost about 500,000 jobs since the onset of the pandemic, and while the unemployment rate is decreasing somewhat, the expectation is that, frankly, the unemployment rate will likely tick up in January when those numbers are reported as a result of the falloff in the typical seasonal hiring which occurs towards the end of the year.  Of those 500,000 jobs that have been lost in New York City employment, about 135,000 of those have been in the restaurant sector, and probably more than that in each the hotel sector as well as a significant amount in the Broadway theater and other tourist-related enterprises within the New York City market.

We’ve had about 1,000 restaurants close out of a census of about 26,000 restaurants in New York City.  And while we don’t have numbers yet for January, the expectations are similar to what we see in the right-hand side of this graphic, where we have the U.S. results in January for employment numbers.  And even though there was an increase in employment in the U.S., there was a decrease in U.S. employment in the restaurant industry.  So the restaurant industry continues to be very hard hit by this, and the governments are I think sympathetic to restaurateurs’ desires to get back to business but have been very cautious to ensure that there’s not any uptick of COVID cases as it relates to meeting in public and gathering in public events.

Airbnb continues to be a big topic in the hospitality industry.  You’ve probably all heard it went public a few weeks back and has been one of the darlings of Wall Street, at least in the past few weeks.  Airbnb in New York City has faced legal challenges over the past few years, but it continues to be here.  It continues to be a significant market for this company, with over 50,000 units available within Airbnb in New York City.  And the majority of those are in Manhattan, but there are many units in Brooklyn and in Queens.  The room rates that are charged by Airbnb hosts at $164 frankly are not that much different than the room rates charged by hoteliers right now in New York City.  And normally Airbnb would be a good bit less than what hotels are typically charging.  

And where we see Airbnb continuing to be at a much lower level than in hotels is in its occupancy rate.  So right now occupancy in hotels is generally only in the 35 percent area compared to 28 percent for Airbnb, but when times are good, occupancy in New York City, for instance over the past five years, excluding 2020, had been more than 80 percent and in some cases approaching 90 percent.  So what I think we’ll see is that now that Airbnb is public, Airbnb and companies like that – call it the sharing economy, if you will – they will offer additional segmentation of their product so an Airbnb express, an Airbnb luxury type of offering, as well as purpose-built properties that can accommodate and help grow their business model in full compliance with local regulations.  And that would be through partnerships rather than Airbnb getting into the real estate business itself.

Homing in on the New York City hotel market in particular, New York City – this chart shows you five of the key metrics along the X axis for tracking the health of hotel markets, and the bars represent in blue the U.S. total.  The gray bar shows the top 25 markets and the black bar shows New York City.  So in a case of the bigger they come, the harder they fall, New York City has seen the largest dropoff in demand.  As a result, it’s seen the largest decrease in occupancy and room rates, with RevPAR declining nearly 70 percent for the year.  And frankly, it was up early in the year and then declined to the latter part of the year closer to an 80 percent falloff in hotel revenues.

And you can see over in the right-hand side – I’m sorry, the left-hand side – the supply numbers.  That is due to hotels closing.  It’s unclear whether those closings will be temporary or permanent at this point, but there are still many hotels that are opening.  New York City had the largest pipeline of hotels under development of any market in the U.S., but that’s been counterbalanced in these stats by virtue of the post-COVID closures in New York.

This graphic gives you a view, a different type of view, of the RevPAR decline with the red line showing the United States and the black line showing New York City.  The expectation or the hope was back in April and May that as there was started to be some post-downturn recovery, that that would continue up in more of a V-shaped fashion.  What’s really happened is then since that time the demand has not really picked up and pricing has remained low in New York City, such that the total revenue in the hotel sector remains down close to 80 percent.  And we’ve seen some uptick across the U.S., particularly drive-to markets and leisure markets that accommodated summer demand, but even that has moderated a bit towards the latter part of the year.

One of the comments I mentioned a few minutes ago was that we may see hotels permanently closing in New York City, and the head of the Hotel Association of New York City recently spoke to the press and said that he expected that maybe 50 percent of the hotels would not reopen.  I think that’s a little pessimistic to my mind, but based upon the age of hotels and a normal hotel, it’s typically expected to have an economic life or useful life of about 50 years.  The stats indicate that we might see 20 percent of the existing hotels leave the supply, and I’ll talk a little bit in a few minutes about where they might go.

I mentioned earlier that there is many hotels still in the pipeline for New York City, but that pipeline, as you can see in this graphic, has been slightly decreasing over time.  And that’s because as new hotels have opened, New York City has seen its pricing power, if you will, its ability to charge high room rates, diminished, and the feasibility has been challenged such that new hotels are hard to make pencil out.  So I think we’ll continue to see a decrease in developer interest in adding new hotels to the supply going forward.

In terms of what the forecast is right now, I have presented just one slide, and that’s because I have some skepticism about anyone’s ability to forecast where we go from here based upon where we stand today.  But what you can take away from this graphic, it shows hotel revenues in 2008 were nearly $250 a night for every hotel room in the city; and following the Great Recession and the collapse of Lehman Brothers, hotel room rates never got back to that level all the way up to 2019.  Going into ’19 – sorry, going into ’19-2020, we obviously see hotel revenues decrease dramatically.  The expectations from the two firms that are the best-known hotel forecasters in the business, STR and CBRE, presented estimates recently expecting room rates to get back to 2019 levels by probably 2025, 2026.  So there’s a significant time lag yet for recovery to where we were in 2019, not to mention where we were back in 2008.

So I mention there’s a couple of caveat with these forecasts.  One is that my belief is that the forecasters incorporate only a fuzzy understanding of when and how vaccine distributions will restart the travel engine and only a fuzzy understanding of how many hotels may close, which will leave a stronger market, perhaps, for those remaining properties in the hotel sector.  

And so with those rather – some glum slides, I wanted to present some reasons for optimism, as well as some angles which hoteliers may take to demonstrate their resilience going forward.  On the reasons for optimism, obviously the new president has made improved vaccine distribution a high priority, so that should help bring things about.  Travel intentions are rising among the population generally; so while there are not many people booking trips, there are lots of people looking for trips who have put off their honeymoon or put off their annual vacation, and there appears to be a significant amount of pent-up demand that will jump-start a recovery once the all-clear sign is given.

New York City remains a coveted destination both domestically and internationally.  If you’re planning a trip to New York – to the United States, chances are you’re coming through the Port of New York as your place of entry.  The strong stock market and improved GDP growth should bolster travel demand by improving the economic health of citizens.  New commercial developments in New York City I think are likely to stimulate demand, so properties like the Hudson Yards Development and other major corporate office towers as well as luxury residential units are likely to stimulate some demand.  We have several destination hotels planned to open soon in New York City, so mid-market or broad market properties such a the Margaritaville Restaurant and the Hard Rock Hotel are open – are planning to open soon, as well as luxury properties such as the Six Senses and Aman Hotels, two world-famous luxury brands.  And then I also think hoteliers will use room rate discounts as a way to stimulate demand in the early section – early period of recovery, and that’s a pretty common tactic by hoteliers.  

We’ve seen during this downturn many responses that the hoteliers have deployed in order to try to sustain their business as best as possible.  One is alternative uses.  My school, NYU, has taken several hotels to provide additional student housing to maximize the social distancing.  There’s been a tremendous demand for years in New York City for homeless shelters.  That continues apace.  There has been COVID relief worker housing, National Guard housing, people who are working to assist hospitals and vaccination centers, as well as facilities for those recovering from COVID.  And then there is also housing for quarantined travelers.

There is plenty talk among my clients and hoteliers in New York about the opportunity to change use.  One is for residential apartments, and most recently, I think about a week or so ago, Governor Cuomo announced a plan to facilitate conversion of properties to residential apartments, particularly pointing out hotels.  So the specifics of that plan have yet to be fleshed out, but that could lead to a significant change in the makeup of hotels versus apartments in New York.

Some hoteliers have offered their properties as temporary offices, and that has provided some demand.  And some hotels are likely, frankly, to not reopen and to be contributed either to a redevelopment effort for a different type of real estate use or combined with other land parcels to make a bigger development site.

And then finally, a couple of the adaptive reuses that have been noted recently in the press and elsewhere – one is the advent of ghost kitchens, so called, where there’s no restaurant, but the kitchen facility is there, and chefs offer takeout and delivery – only food without in-person seating in the facilities.  And that’s a way to use kitchens that might otherwise be lying fallow.  

Finally, the American Hotel & Lodging Association has sent an open letter to the CDC and the government saying that they would be – welcome the opportunity to become vaccine distribution centers, since hotels are in many locations around the country and have ballrooms and meeting space and lots of parking that is otherwise not being fully used at this point.  

So hoteliers are doing their best to make do during a difficult situation, but the real recovery story has yet to be told and is going to wait until the market fully recovers.  

A couple of slides ago, I showed you this graphic of the trends for recovery.  And for those of you who are interested in numbers, I put as an addenda all the actual numbers lying in that graphic.  So you can check my math if you like, but I didn’t think it was worth going through the numbers in detail.

So with that, that is my presentation for today.  And I’ll – happy to answer any questions and turn it back over to Stephanie. 

**MODERATOR:**  Thank you so much, Sean.  I’d like to open it up for questions now.  If you have a question, you can either raise your hand in the participant tab, or you can put your question into the chat and I will call on you or read out your question as you ask it.  

So before we go to any questions from the journalists, while we’re waiting for them to come in, let me just ask – you touched on it a little bit, but I was wondering if there was any movement or any discussion in the hotel industry about asking for government support, either on the state level or the federal level, or what that might look like or what they might expect.

**MR HENNESSEY:**  Sure.  Yeah, the hotel sector, as typically represented by the HLA, which is the American Hotel & Lodging Association, they have lobbied for support.  But that support has generally coincided with the payroll protection programs.  So that has been the main emphasis among hoteliers for support.  

The other area where the government has granted some support that’s been helpful to hoteliers and to restauranters has been the policies to put on hold either the payment of rent, the payment of mortgages, or the ability of lenders to foreclose and act on nonpayment or any sort of deferrals in those areas.  So the hotel sector has generally been aligned with the major initiatives in terms of COVID support.  The sector did try to push a stimulus that would encourage people to travel or encourage people to go to restaurants.  I don’t think that’s really gotten as much traction as the other broader metrics that are supporting the economy during the downturn. 

**MODERATOR:**  Let me just ask you another question that’s come in the chat.  It is about business travel and the future of business travel versus tourist travel.  With people working remotely and people understanding the benefits of that and maybe the financial benefits, how do you expect the situation might affect the hotel and tourism business? 

**MR HENNESSEY:**  Sure.  The consensus expectation at this point is that any recovery in the travel sector will be led by the leisure or vacationer segment of the business, and that corporate travel will lag that, and that convention and group meeting travel will lag that even further.  

So the expectation is that pent-up corporate travel demand is not likely to be the source of recovery.  There still a lot of uncertainty as to how corporate travel will play out.  There’s some camps saying that now that people like working from home in their bathrobe, they’re not going to be interested in getting on a plane and flying around the country to meet with clients.  There’s a lot of – another camp that suggests that people like to do business, that they can shake their hand and get to know on a personal level, and that can only be done with in-person meetings.  

So the expectation I have is that we will see a return of corporate travel, but it will take a couple of years, frankly, before that approach is anything like where it had been earlier.  But it’s also I think important to put it a little bit in context, and that is most of the – of travel throughout the U.S. is leisure travel.  Corporate travel is primarily concentrated in the major urban markets, and that’s one of the reasons why the consensus view is that the major urban markets in the United States will lag in terms of recovery for its hotel businesses, compared to leisure markets, more suburban, rural, resort-type of destinations. 

**MODERATOR:**  And one other question I’d like to ask is about the talk about vaccine passports.  Have hotel industries discussed that, or what do – what’s your opinion on that possibility? 

**MR HENNESSEY:**  So hoteliers and some countries have talked about introducing vaccine passports as a way to give someone a certification of clean bill of health to move freely.  I think it will be difficult to implement here in the U.S. based upon privacy and other medical privacy types of regulations.  But I’ve certainly seen other countries indicating that they are – they’re planning on introducing regulations that essentially say you have to prove you’ve received your vaccinations in order to travel to our destination.  I think we could well see that in areas where it’s particularly vulnerable if there were problems with people getting the COVID disease, such as on a cruise ship.  But I think there’s yet to be any sort of top-down organization that says, “Okay, this is how it will work and how it will be implemented.”  And until we see that, it’s hard to imagine more of a piecemeal system being effective even in the U.S., but more broadly throughout the world.

**MODERATOR:**  Thanks.  And I have a question from Rezno Ruf, who is with the Aargauer Zeitung in Switzerland.  His question is about international travel, and he asks: “Would the U.S. border close for people living in the Schengen zone in the EU?  How realistic is a recovery for tourism sector?  Or, in other words, how important are European tourists for the New York City market?”

**MR HENNESSEY:**  Well, the major – when you look at international inbound tourism to the U.S., the two major players there are Canada and Mexico, right, because they’re adjacent to our country’s borders.  The next-largest player has generally been the UK and then most of the other countries tend to be significantly smaller once you get to different countries around the world. 

So each market is important, and they’re also important for seasonal reasons.  So Brazil and China, they tend to travel during a certain time of year whereas other nationalities travel at different times of years.  So I think there is a lot of questions and a lot of risk, and frankly, a lot of uncertainty in the forecasts as it relates to travel recovery, particularly for New York City, because it appears that many countries are even behind where we are in the U.S. in terms of distributing vaccines and reopening their economies.

So like I said earlier, part of the question is:  When will Broadway reopen; when will New York hotels reopen to start that business?  But that’s a bit of a chicken-and-egg question because a lot of that depends upon where we see international travel improving based upon improvements in vaccinations to the various countries.  

So I’m – frankly, I’ll remain cautious at this point relative to the forecasts I presented today because it still seems like we have a long way to go, but – I’m cautious but hopeful, how about that.

**MODERATOR:**  That’s a good note to be on.  Let me ask you, finally, any advice for our journalists’ readers?  Should they be booking now?  And what – how should they look at the future for their future trips?

**MR HENNESSEY:**  Well —

**MODERATOR:**  Looking versus booking.

**MR HENNESSEY:**  Yeah.  I think the hotel sector will use aggressive discount pricing when it becomes clear that it will be effective.  And I’ve checked a number of the hotels’ prices in the New York market and while they’re down, they’re not giving it away, as you might think.  And that’s because I’m sure the hoteliers don’t feel that it will generate that much incremental business by further lowering their prices.  

My advice as a tourist or from a personal travel perspective:  Frankly, I would wait to see a large benchmark like an announcement or a confirmation of the reopening of Broadway, which right now, the state of New York has indicated it can restart in August.  That doesn’t mean that it will, but that’s just the target they’re looking at now.  But once you see Broadway productions getting ready to reopen, then I think you’ll see the restaurants reopening, the shops reopening, the hotels reopening, and giving a more fulsome tourist experience.  

I think right now, the more attractive destination, if you will, for a tourist would be an area where you can go and spend time outdoors and enjoy attractions which don’t require manpower, don’t require safety protocols and all the rest.  So that’s why we’ve seen strong demand increases over the summer and into the fall in Key West, in the coastal resorts of Florida, in some of the coastal resorts out in the western United States where the situation is less – less intense than it is in the New York market.  

But I think New York, it’s still going to be attractive, but my guess is fourth quarter of 2021 will be a good time to think about planning a trip to New York on a bargain price.

**MODERATOR:**  Thank you so much for your presentation today.  For our journalists listening in, Sean has kindly agreed to make his presentation available.  I will send you that along with a link to the transcript and the video of this presentation.  Thank you very much and please look out for our continuing sessions in this series about resilience in the time of COVID.  

Thank you so much.  Bye.  

**MR HENNESSEY:**  Thank you.  Goodbye, now.  

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