Hotel owners across the United States are asking for further relief as the Covid-19 outbreak sees hotel occupancies drop to single figures.
Many of the hotels are either family-owned or by small or medium sized enterprises (SMEs).
Although benefitting from the Paycheck Protection Program (PPP) which offers federal guaranteed loans to businesses with fewer than 500 employees to cover payroll and other essential costs, many hotels find themselves in difficulty because of other associated costs, including those of being a franchisee to one of the big hotel chains.
As regular readers will know, the majority of hotels chains have, in recent years, pursued what they call an ‘asset light’ approach to their businesses. It means the vast majority of hotels are not owned by the major chains, which instead offer various services such as sales and marketing and, of course, one of their brands as a ‘flag’ above the property.
We recently published news from Choice Hotels
It provoked an angry response from some of Choice Hotel’s owners and operators.
Several issues were highlighted, not least that although it is true that 90 per cent of its hotels are open, a significant factor is that if the hotels close voluntarily then this may render invalid any business interruption insurance they have taken out. Yet while remaining open, the hotels are experiencing single digit occupancy levels.
In those circumstances, hotels which operate under a franchise agreement with the large brands are looking for reduction or deferral of their payments under those franchise agreements (if they leave the franchise agreement early, they are subject to many hundreds of thousands in ‘liquidated damages’).
Deferrals have been offered by Choice Hotels to its franchisees when requested, but these deferrals have come with strings attached, with payments deferred for a maximum of 24 months, and, in some circumstances, only being offered if the hotels waive their next ‘window’ to leave the franchise agreement, effectively signing up for several more years with Choice Hotels.
Hoteliers that Business Traveller has spoken to describe a difficult situation for thousands of owner / operators of hotels across the United States. Policies differ between chains and in many cases between individual properties, but one hotelier said that Best Western had “reduced all of our fees by 50 per cent.” while the privately-traded Redruth had also been understanding of hotels’ predicament arranging for a reduction of 35 per cent, though hoteliers admit that the situation is on a case by case basis.
Choice Hotels, however, seems to have attracted a fair amount of criticism from its franchisees.
Dave Gandhi of GHM with partnerships across over 20 assets in several U.S states said, “We have all had to lay people off; Choice has, we have, but if they have let go of their sales people and operations people who are there to help us, and they are sitting on $498 million of cash, why are we still paying the full fees to them which include sales and marketing?”
“Choice Hotels has fallen to its lowest moral point. They have not committed to helping their customers (franchisees). All other brands have understood the crisis and at the minimum stated a reduction of royalties and no late payment charges. Choice Hotels is dependent on thousands of franchisees and yet shows no compassion.”
Other charges include the requirement to continue paying a fixed amount to a hotel’s assigned Choice Hotels revenue manager, despite having little or no revenue.
For its part, Choice Hotels says it has “taken several measures to support its franchisees and guests during this challenging time”
“The measures to date include but are not limited to the following:
- Implemented fee-deferral programs for domestic and international franchisees.
- Suspended one-time finance charges, reputation management fees and guest relations handling fees.
- Paused quality assurance reviews, extended capital-intensive brand deadlines and created more flexible brand standard options in line with the current operating environment.
- Successfully advocated to expand the amount of and eligibility requirements for government relief SBA programs and other CARES Act benefits to help franchisees retain employees and service their debt.
- Established a proactive, ongoing multi-channel franchisee outreach and education program that is actively helping thousands of hotel owners access this newly available capital.”