Leisure travelers helped businesses in the hospitality marketplace rebound immensely. Pent-up demand led many leisure-driven markets to recover to pre-pandemic levels. Apparently motivated by money put into the economy and their pockets by the federal government, many people could not wait to get out and enjoy themselves after being virtually chained to the environs of their own homes. Fueled by these factors, many casino resorts had record revenues in 2021. Further, the advent of business and leisure (bleisure) travel has bloomed. Many travelers are working at least some business into a leisure trip and vice versa. Perhaps a nonworking spouse or children can join, and a trip can be extended.
Tourism data continues to be positive. United Airlines reported that “summer’s blistering pace” is continuing into the fall. There are even signs of activity exceeding pre-pandemic levels as U.S. travel surpassed 2019 levels over the Labor Day weekend. New York City hotels were booked through Labor Day weekend with an occupancy rate around 95%.
Nevertheless, the skies filled with uncertainty. Risks may be on the horizon.
FUTURE RISK
Most of the federal programs that fueled the economy have ended. International travel and even cruises are more acceptable as alternatives to domestic tourism. With interest rates increasing dramatically and stock markets in flux, a recession may be around the corner. All of these factors could lead to a more “normal” pullback in leisure business like those in earlier downturns.
Another major risk factor is the continuing labor shortage. Like many other industries, hotels have had a tough time finding enough staff for many positions. For example, many hotels could only provide housekeeping services upon request. This labor scenario could result in reduced leisure business for two reasons. First, if the experience becomes less enjoyable, people will travel less. Second, labor shortages increase the cost of staffing, leading to rate increases, which could further deter people and businesses from travel.
Deferred capital expenditures pose an additional danger factor. Many properties deferred capital expenditures for several reasons. First, there was a lack of cash flow to fund projects. Second, continuing supply-chain issues delayed many projects. Commencing new projects often requires several rooms or whole wings of a hotel to be taken out of service for weeks or months at a time, disrupting operations just when revenue has started to come back.
So, what are prudent hoteliers to do? With luck, many are just getting over the worst period of their careers—they should do everything to maximize short-term profits. They should make sure they have an adviser or certified public accountant familiar with the hotel industry to help them evaluate their cost structure, minimize their taxes, and take advantage of continuing government pandemic programs, such as the Employee Retention Credit. They should try to either plan or implement some or all of those deferred capital expenditures. Perhaps they can refinance before interest rates get too much higher.
Most important: They should stay close to their customers. If things get more competitive, loyalty is going to be a significant differentiator in helping them continue to attract those tourists and convince them that, yes, it’s safe to go out and explore the world again.
“Citrin Cooperman” is the brand under which Citrin Cooperman & Company LLP, a licensed independent CPA firm, and Citrin Cooperman Advisors LLC serve clients’ business needs. The two firms operate as separate legal entities in an alternative practice structure. Citrin Cooperman is an independent member of Moore North America, which is itself a regional member of Moore Global Network Limited.alternative practice structure. Citrin Cooperman is an independent member of Moore North America, which is itself a regional member of Moore Global Network Limited.
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