Should taxpayers bail out ‘break-even’ hotels?

Should taxpayers bail out ‘break-even’ hotels?

As they are just about everywhere, and to no one’s surprise, hotels in Greater Pittsburgh are continuing to struggle through the ongoing coronavirus pandemic.

“The pandemic has triggered countless closings and massive layoffs in what could be the worst year on record for hotel occupancy nationwide,” reports the Post-Gazette.

And that has set off the now-usual discussion about how the government might bail out some of these operations.

But given some pertinent statistics, the prudence of a taxpayer bailout doesn’t exactly strike a chord as sound public policy.

As the P-G dispatch details it, work on a new $60 million hotel at the Rivers Casino on the North Shore has been on hold. Downtown’s Omni William Penn and the Westin Pittsburgh have remained closed since March, it also notes. Additionally, the supposedly neighborhood-reviving Ace Hotel in East Liberty has been shuttered since March and now is for sale.

And, of course, occupancy rates at many other hotels are markedly down from normal. “(M)any are still struggling to boost occupancy above 40 percent,” the P-G says, after dropping (on an Allegheny County-wide basis) to 11.8 percent in the spring. Downtown hotel occupancy, meanwhile, tanked to 4.6 percent.

But for the week ending Oct. 24, the newspaper says, the county occupancy rate was 41.4 percent after recovering to almost 44 percent in August.

In that same October week, Downtown hotel occupancy was 28.6 percent but had recovered to 38 percent at one point, notes the P-G.

Local industry officials don’t expect much better for the final six weeks of the year. Some even say it could be April 2021, if then, to see significant improvement.

National hotel industry officials have been pressing Congress (that would be taxpayers) for a bailout.

But while there’s no doubt that hotels here, there and everywhere are hurting and a far cry from occupancy rates to be considered “average” and “healthy” – just under 67 percent countywide and just under 69 percent for Downtown, based on statistics for the first nine months of 2019 – many of these hotels are or have been near, at or above the industry standard for breaking even.

As the HotStats.com website notes:

“The break-even occupancy for the total U.S. to achieve a zero gain or loss in profit is 37.3 percent.” For luxury hotels, that rate is 34.4 percent.

Thus, if taxpayers are to bail out this latest industry in a long line of industries at all, should taxpayers be “bailing out” those breaking even? That certainly doesn’t appear to be a sound public policy prescription.

“After years and quarters of positive profit gain for hotels, COVID-19 has forced hoteliers to think differently and consider break-even modeling,” the HotStats.com analysis says.

“Running a hotel that loses money is not a viable business model and with occupancy globally taking a hit, it is incumbent on hoteliers to consider what occupancy rate will allow a hotel to sustain operations,” it concludes.

And without the premise or promise of taxpayer subsidies, we must emphasize.

Colin McNickle is communications and marketing director at the Allegheny Institute for Public Policy (cmcnickle@alleghenyinstitute.org).