Downturn: The COVID-19 Impact on Leisure and Hospitality

April 29, 2020
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Author: Mara Zemicael

In a matter of weeks, the coronavirus pandemic has managed to disrupt the global economy. In the U.S., oil prices have plummeted, millions of workers have been laid off and most residents have been ordered to shelter in place at home. Though an end to the current crisis and economic decline is inevitable, the negative effects on the Leisure and Hospitality supersector are historic.

Social distancing measures have hit the bottom line of many establishments.

Decline Across All Leisure and Hospitality Subsectors

Since the subsectors of Leisure and Hospitality – food and beverage, travel and tourism, lodging, and recreation – require in-person interaction and disposable income, it is understandable that the necessary coronavirus prevention measures, such as social distancing, shelter-in-place orders and the shutdown of nonessential businesses, have brought the Leisure and Hospitality sector to a standstill.

According to the Bureau of Labor Statistics (BLS), in March the industry lost 459,000 jobs, with the food and beverage subsector being heavily impacted. The March job loss numbers are much larger than the BLS reported, as the BLS numbers for that reporting were based on a survey done between March 8 and 14, with a reference date of March 12. For example, Disney and some other theme parks in the Orlando-Kissimmee-Sanford, Florida metro did not close until March 14 or later, so the full impact on the reported job loss numbers were not counted. In 2019, Leisure and Hospitality made up 10.8% of the jobs in the U.S. ThinkWhy predicts this number will drop to 7.7% in 2020 or a loss of 30% of all the jobs in the sector. For comparison, ThinkWhy forecasts that the Orlando metro will lose 20% of its Leisure and Hospitality jobs in 2020.

The job loss by metro across the country has been uneven, depending upon the share of employment each subsector has in the metro. For instance, the Orlando-Kissimmee-Sanford, Florida metro where all subsectors are large, lost only 0.11% of its Leisure and Hospitality jobs in March, while Toledo, Ohio lost 12.9% of its jobs in its subsectors. (This comparison can be misleading due to the survey reporting period.)

Related: A Tale of Two Industries During COVID-19

The pain is being felt heavily across almost all food and beverage establishments. The National Restaurant Association states that since March 1, the restaurant industry has lost more than 3 million jobs and $25 billion in sales. It also reports that roughly 50% of restaurant operators were expected to lay off more workers in April.

“Association research found that 54% of operators made the switch to all off-premises services; 44% have had to temporarily close down. This is uncharted territory,” said Hudson Riehle, the National Restaurant Association’s senior vice president of research. “The industry has never experienced anything like this before.”

Social distancing measures have decreased the bottom line of many establishments.

Hotels are reporting a similar decline. According to CBRE, a full-service commercial real estate firm, from the start of the COVID-19 outbreak in January, it will take an estimated six to 10 months for demand for hotels in the U.S. to recover and 12 to 16 months for hotels’ Average Daily Rate (ADR) and revenue per available room to return to normal.

To cope with the downturn, some Leisure and Hospitality businesses are making changes to their strategies. For instance, a finance VP at a Los Angeles hotel chain stated to ThinkWhy, "We are establishing standard procedures for staff to work from home. We are providing the needed software and hardware for remote operations and creating a critical response team with the goal of sustaining operations for at least six months." However, staff may not have enough to do if guests stay home because they fear contracting COVID-19.

Though some Leisure and Hospitality businesses, such as airlines, have received relief from the CARES Act, the ban on travel, dining in at eating establishments and other service businesses have resulted in the industry almost coming to a complete halt. To cushion the hit to their revenue streams, businesses are becoming creative. Many restaurants are offering online ordering, curbside pickup and contactless delivery. Some businesses are even changing their products. The owners of Pink Pedi, a Dallas-based nail salon, has shifted to making and selling face masks to keep employees on their payroll.

Though some businesses have been able to either adapt or wait out the downturn, others may not be able to resume operations once the economy recovers from the pandemic. One business that seriously considered bankruptcy and permanently closing its doors is AMC Theatres. With no incoming revenue and already in debt prior to the pandemic, the movie theater chain came very close to shutting down. However, as of April 20, AMC Theatres said it plans to avoid bankruptcy by raising $500 million and reopening in July.

The Future of Leisure and Hospitality

Though no one knows for sure when the country can return to full business as usual, many states, like Washington, California and New York, that have been strongly affected by COVID-19 are considering when a gradual lifting of shelter-in-place orders and reopening of nonessential businesses with social distancing requirements should begin. Some states have already begun to relax shelter-in-place orders and open nonessential business in April. These include South Carolina and Georgia.

ThinkWhy forecasts that Leisure and Hospitality should begin experiencing growth in Q2 2021. Regardless of when the industry is able to return to business pre-pandemic, the industry may be permanently altered. It may rely more on virtual technology and more diverse product offerings instead of so heavily on the personal-touch customer service it has been known for.

ThinkWhy continuously monitors and forecasts labor data at all levels, measuring impact to MSAs and businesses across the country. Stay current with us. We are here to support organizations and provide insights during the economic downturn, as well as the recovery phase.