Article by Ethan Kable
In California, the tourism and hospitality sectors have been hit hard by COVID-19, but analysis from the Lowe Institute shows that there are reasons to believe the industry can bounce back.
Out of all states, California brings in the most yearly revenue from tourism. However, with stay-at-home restrictions in place and travel drying up, the state’s hospitality industry has taken a major hit. Using data from STR — a business analytics company specializing in the international hotel industry — Lowe Institute analysis shows the extent of COVID-19’s impact on the industry.
Even before Governor Newsom announced the stay-at-home order on March 19, COVID-19 fears were reflected in hotel occupancy rates and room prices (or average daily rate [ADR]). As the below figure illustrates, hotel occupancy rates started dropping the week of March 7, falling steeply until bottoming out at 21.78% during the week of March 28. For comparison, California hotels boasted a 77.87% occupancy rate during this same week in 2019.
Interestingly, since the week of March 28, hotel occupancy rates have seen a steady increase. In fact, the occupancy rate of California hotels during the week of May 23 was 44.1% – a roughly 22 point increase from the low point two months ago. Though an occupancy rate of 44.1% is well below the figure for the corresponding week in 2019, the upward trend is perhaps a reflection of loosening restrictions in some areas of the state and an increased willingness of residents to travel.
When it comes to the ADR being offered by California hotels, there was a similar drop-off starting the week of March 7. Yet the ADR nadir of $90.69 occurred the week of April 11 and has stayed relatively constant since then. It appears that most hotels are charging a break-even price on rooms, and due to the over-supply of available rooms, they are not able to charge much more.
Disaggregating the data into the 12 tourist regions of California (as defined by VisitCA.gov), shows that COVID-19 has had a heterogeneous impact on the lodging industry in different regions. While all regions have seen significant drops in occupancy rate and ADR, the severity of the drop varies region to region.
The maps illustrate the percent change in occupancy rate and ADR from April 2019 to April 2020 for each region provided by VisitCalifornia.com. In terms of occupancy rates, the regions that saw the biggest percent decrease in the month of April as compared to the same period in 2019 were: Orange County, San Francisco Bay Area, Central Coast, LA County, and San Diego County. These five regions — which are the state’s most popular tourist destinations, especially in the pre-summer months — each saw year to year occupancy rate drop by over 60% in April. Only two regions saw April 2020 occupancy rate drop by less than 50%: the Inland Empire and Central Valley regions.
When we consider regional trends in year to year percent change in ADR, there are some notable differences. For one, the region that saw by far the largest percent decrease in ADR for the month of April was the Deserts region. It’s 60.1% decrease in ADR was almost 10 points greater than the next region. This significant drop off might be explained by the postponement of the Coachella and Stagecoach music festivals, which were slated to bring in nearly half a million visitors to the Coachella Valley during the month of April. With these festivals cancelled due to Covid-19, hotels were unable to raise prices as usual.
Otherwise, the regional ADR trends look similar to the regional occupancy trends for the month of April. Once again the San Francisco Bay Area, Orange County, San Diego County, Central Coast, and Los Angeles regions saw the biggest percent decreases whereas the Central Valley and Inland Empire regions were among those that saw the smallest decreases.
One important point that should be noted is that these data only consider hotels that have continued operations during the pandemic. If a hotel has shuttered operations for 30 days, it is excluded from the dataset. A recent survey from hospitalitynet.org found that as of mid-April in the Los Angeles, Orange County, and San Diego areas, between 25% and 30% of hotels suspended operations. This means that data on changes in occupancy rate and ADR don’t fully capture the extent of the pandemic’s impact on lodging.
Despite tough times, many hotels aided the state’s response to the pandemic. In the Bay Area and Los Angeles, a number of hotels have signed onto Governor Newsom’s Project Roomkey, which aims to find lodging for homeless individuals at particular risk of contracting COVID-19. As of May 27, in LA County alone, over 3,500 rooms had been made available for Project Roomkey and 3,064 homeless individuals are currently being sheltered. Similarly, a number of hotels have agreed to participate in a program that provides rooms to medical workers at risk of contracting the novel coronavirus who can’t or don’t want to live at home.
With many US states, including California, cautiously beginning the process of re-opening, the lodging industry should continue seeing the gradual upward trend in occupancy rate and ADR. Hotels that cater to intrastate and regional tourism may recover more quickly, whereas those that rely on national and international travelers as well as hosting large events may take longer. Overall, the outlook for California hotels is hardly rosy, but as long as Californians have an itch to travel, the industry might just hold on.