The kind of hotels you would most like to stay in aren’t necessarily those you are best off investing in during a pandemic.
The plush global hotel brands favored by international business executives have been hit hardest by Covid-19 and will likely take longest to recover. Some may even have to rethink how they make money.
U.S. midmarket hotels have held up better as many more humble business folk have no choice but to travel for work. In the stock market, that has rewarded Hilton Worldwide HLT -1.30% over Marriott International MAR -1.01% and in Europe, InterContinental Hotels Group IHG 0.07% over Accor. AC 0.92% Hilton owns the Hampton chain, while IHG’s most important asset is the family of brands centered on Holiday Inn.
The second quarter wasn’t easy for anyone, but London-listed IHG fared less badly than most. This week the company reported an aggregate quarterly decline in revenue per available room or RevPAR—the key metric for a hotel’s top-line performance, combining room rates with occupancy—of 74.7% across its chain. Marriott, Hilton and Accor recorded declines north of 80%.
Paris-based Accor, Europe’s largest hotel company, has had a particularly difficult time. It reported a net loss of €1.5 billion ($1.8 billion) for the first half, far worse than IHG and its larger U.S. peers. The almost total closure of its most important markets in Europe, which imposed stricter lockdowns than the U.S., is one big reason.
Another is Accor’s operating model. Unlike IHG and most U.S. hotel companies, which typically either manage or franchise out hotels, Accor still owns a big chunk of real estate. Chief Executive Sébastien Bazin has been shifting the company toward the “asset-light” model of its peers, but the task isn’t complete.
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Earning management or franchising fees on hotels means the big-brand hotel companies are less exposed to the economics of a travel crisis than might be imagined. The owners or lessees are the ones that have to bear the costs of the real estate amid a collapse in revenue. Shares of Park Hotels and Resorts, the real-estate company spun out of Hilton Worldwide in 2017, have fallen more than 60% this year, compared with just 21% for Hilton itself.
For all hoteliers, RevPAR declines moderated through the quarter and into July from the April trough, but they remain unprecedented in historical terms. The big question, particularly for the likes of Marriott with a skew toward full-service hotels, is whether international business travel will ever return to normal amid the rise of videoconferencing.
A hand-sanitizing station at the Holiday Inn Whitechapel hotel, in London, U.K., July 3.
Photo: Chris Ratcliffe/Bloomberg NewsMr. Bazin at Accor told analysts last week that 10% to 15% of the market might disappear—an outcome that would force hoteliers to find alternative uses for the space. Accor sees co-working as a possibility, but that, too, is a crowded market.
Amid all the gloom, large listed hotel companies can cling to one certainty: that the crisis will be worse for others. A source of their growth historically has been expanding their hotel count—and fee base—by signing on smaller chains that want or need support. The sector’s current financial troubles seem likely to accelerate the consolidation trend. Accor is currently in talks with landlords about Travelodge, a U.K. budget chain that stopped paying rent during the lockdown.
This is a suitably dull place for the French company to be looking for a deal. Hotels pitched at the jet set face a much less certain future.
Corrections & Amplifications
Accor made a loss of €1.5 billion ($1.8 billion) in the first half of 2020. An earlier version of this article incorrectly said the loss was $1.5 billion. (Corrected on Aug. 13, 2020)
Write to Stephen Wilmot at stephen.wilmot@wsj.com
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