These are difficult times, particularly for the hotel industry. Travel has all but ceased as many states have issued stay-at-home orders and lockdowns, and the country is self-quarantining to slow the spread of the coronavirus. Hotel occupancy rates are the lowest they have ever been at about 38%, according to Smith Travel Research, with some places, like New York City, much lower than that. Revenue per available room (RevPAR) -- a key metric for the industry -- is down about 50% from the previous year.
The drop in revenue has forced many hotel companies to make tough decisions to stay afloat, including Wyndham Hotels and Resorts (NYSE:WH). On March 30, the company announced several cost-cutting measures, including layoffs.
Wyndham CEO forgoes salary
The hotel chain will eliminate approximately 270 positions by the end of the second quarter, Wyndham officials said. These layoffs will incur pre-tax charges of approximately $15 million to $18 million in severance and benefits costs, but ultimately they will result in annual savings of about $30 million.
Overall, about half of Wyndham's 2,500 employees have been affected through layoffs, salary reductions, furloughs, and reduced-hour work weeks.
Also, Wyndham President and CEO Geoffrey Ballotti will forgo 100% of his 2020 base compensation indefinitely, while each board member will give up his or her annual retainer indefinitely. Further, the company announced that Tom Barber, global chief development officer, left the company effective April 1.
Outlook for 2020 is withdrawn
On March 17, Wyndham withdrew its 2020 outlook due to the effects of the coronavirus pandemic. The company will provide an update on guidance by its first-quarter earnings call in mid-May.
"We remain confident in the strength and resiliency of our business model, balance sheet, cash flow, and liquidity along with our brands' market-leading position in the economy and midscale select-service segments that are positioned for continued growth moving forward," Ballotti said. At the end of the fourth quarter, the company had $94 million in cash on hand and a debt balance of $2.1 billion.
Until the pandemic passes, Wyndham is working with its franchisees and in its hotels in several ways. Each property has been supplied with guidelines from the World Health Organization and the U.S. Centers for Disease Control and Prevention on how to identify COVID-19 symptoms and mitigate its transmission. The company is also working with Ecolab and other suppliers to provide its hotels with additional cleaning and disinfecting supplies, and the necessary training to achieve "the highest standards of cleanliness, disinfection, and hygiene."
For guests, Wyndham has waived all cancellation and change penalties for requests received within 24 hours for bookings through May 31. For stays after May 31, penalties for non-refundable rates will be waived if canceled within 48 hours of the check-in time. Plus, all expiring Wyndham Rewards points will be extended through 2021.
More relief is needed
The stock price has plummeted about 62% year to date and shares now trade around $19.50. It had gotten a small price bounce last week following the passage of the $2.2 trillion CARES Act, which includes $500 billion in loans for large businesses and $350 billion in SBA loans for small businesses. However, Chip Rogers, president and CEO of the American Hotel and Lodging Association (AHLA), said more stimulus is needed as the limits on the small business loans won't allow hoteliers to meet payroll and debt service obligations beyond four-to-eight weeks.
AHLA is among several industry groups asking Congress and the Trump administration for additional stimulus by establishing a recovery fund specifically for businesses to help them meet expenses and retain employees and benefits.
It's hard to know where the bottom is for hoteliers, but these cost-reduction initiatives, along with any available relief, should help Wyndham get through the crisis. There will be some great buys in the industry as prices have come down dramatically, but there's still too much uncertainty in the industry to jump in now.