COVID-19 “Coronavirus” Impact on the Hospitality Industry

The spread of the coronavirus is dominating headlines around the world. Recently, California declared a state of emergency just as a cruise ship returning to the state from Hawaii was being held off the coast of San Francisco because of reported passengers displaying COVID-19 virus symptoms.  Across the country, many consumers are playing it safe and staying home, while there are still others that are continuing normal day-to-day operations. Businesses are also being prudent and restricting non-essential travel and activities. Due to the fear of community spread through travel and group environments, one of the industries feeling the most immediate impact is Hospitality/Travel.  Resorts and hotels that were booked by excited vacationers and corporate conference-goers are receiving calls to postpone plans or cancel entirely. This is hitting their bottom line in a big way.

In response to this major health issue, resort operators should be planning with their teams for the possibility of two scenarios: 1) if their resort gets infected with the virus; and 2) potential loss of income from diminished travel as a result of the fear (or reality) of virus spread.

With regards to resort health, I came across this helpful guide for the hospitality industry, published by the Department of Health and the Health Protection Agency in collaboration with the Department for

Culture, Media and Sport, Visit Britain, the British Hospitality Association and Leisuresafe. It provides a lot of common-sense guidance on what you can do to protect your employees and your guests to prevent the spread of flu viruses, such as washing hands frequently; avoiding touching eyes, mouth and nose; and use soap and water to clean frequently used surfaces.

The information contained in this document can help you expand your disaster preparedness plan, if you don’t have these recommended measures built into it already.  Most disaster recovery plans include such items as the data recovery, property loss, safety and the like, but few cover this type of event.  It is important at this point to review the recovery plan in place and add action items in the event a resort is affected, either directly or indirectly, by the virus.  It is likely that all resorts will feel effects from a decrease in the traveling public if they have not already.

With regard to the impact on business revenue, resort owners and management should check with their insurance provider, inquiring what their policy defines as “major disasters” and business interruption coverage.  For example, according to the Association of State and Territorial Health Officials, a flu pandemic can qualify as a major disaster if it can be considered a natural catastrophe, as that term is defined for purposes of the Robert T. Stafford Disaster Relief and Emergency Assistance Act of 1988 (a.k.a. the Stafford Act). Pandemic influenza and other communicable diseases are defined as emergencies eligible for coverage under the Stafford Act. But let’s hope we don’t get to that point!  The  Insurance Services Office (ISO) is an insurance advisory organization that can be a resource as well by providing statistical and actuarial information to businesses.

Another point to consider is that many travel insurance companies may not consider this a coverable event, as a traveler at this point should know of the potential for the interruption.  Resorts should advise their patrons and owners to check their personal travel insurance policies closely if they have them.

In the short term, resort owners and operators should consider the need for a line of credit to help finance potential inadequate cash flow as a result of the downturn in business. They should also evaluate contracts and prioritize expenditures, cutting out those non-essential costs while trying to monetize inventory through collaborative efforts with neighboring resorts and external service providers and wholesalers.  A strategic planning session with key stakeholders on how the impacts might affect the resort is most assuredly a prudent idea.  Also, consider offering incentives for people to drive to the resort, such as waiving parking fees or offering discounts. As existing flights and routine travel routes continue to get modified or canceled, driving as a means of vacation travel seems to be increasing.   In the longer-term, expenditures such as major capital projects can be put into abeyance until business begins to pick up again.

At the time of this writing, news channels are reporting that COVID-19 spread is seemingly peaking in countries where it was first identified, prior to impacting the U.S. Let’s hope we see a peek here soon so that we can all resume normal travel without fear or restrictions. In the meantime, take the time to prepare accordingly as outlined in this article, in case of prolonged impact, and observe regular health and safety precautions when you do travel and at home to protect yourself, your resort and your teams.

ABOUT WITHUMSMITH+BROWN (WITHUM)

Withum is a forward-thinking, technology-driven advisory and accounting firm, committed to helping clients in the hospitality industry be more profitable, efficient and productive in the modern business landscape. For further information about Withum, contact Lena Combs (LCombs@Withum.com) at (407) 849-1569, or visit www.withum.com.