Airlines Aren’t Alone. Hotels’ Brand Valuations To Drop 20% Because Of COVID, Cratering Of Travel Demand

The world’s 50 most valuable hotel brands - like their more high-profile cousins in the global travel industry, the airlines – could see 20% of their “brand value” wiped out this year by the near-collapse of travel driven by the COVID-19 pandemic and the expected long and difficult recovery of the sector.

That will translate into about $14 billion being sliced off what was those 50 hotel brands’ combined $70 billion in brand value coming into 2020.

That’s according to Brand Finance, a British consulting firm tracks and calculates the value that companies’ efforts to create market advantages and distinctives for their respective brands add to those organizations’ total enterprise valuations. Unlike hard assets such as real estate and equipment, the components included in “brand value” largely are intangible elements like so-called “good-will” and the added respect, esteem or market preference accorded by consumers to individual brands. Brand Finance pioneered the methodology for calculating brand value now widely accepted by accounting standards authorities around the world.

“Unsurprisingly, the COVID-19 pandemic is going to hit the hotels sector hard as holidays are cancelled and people work from home,” said Brand Finance Director Savio D’Souza.

The company explained that travelers not only cancelled more than 90% of their already-planned leisure and business trips in just a matter of weeks when the pandemic arrived in the United States, they all-but stopped booking last-minute business trips. Now, though there are early signs that a modest recovering travel demand has begun, both leisure and business travelers are expected to be far more concerned than ever before about health issues, and therefore will be slow to return to public places – like hotels and airplanes – where many believe they are more susceptible to being infected by the coronavirus.

Previously, Brand Finance predicted that the world’s 50 most valuable airline brands coming into 2020 will lose about 20% of their brand value by year’s end. That’s equal to about $22 billon of lost brand value from their Jan. 1, 2020 collective brand value of about $1.1 billion. The consulting firm also previously predicted that the top 500 U.S. brands across all business sectors collectively will lose about $393 billion in brand value this year because of the pandemic and cautious, even frightened reaction it. Those top 500 U.S. brands were estimated to have about $1.9 trillion in brand value at the beginning of this year.

In its most recent report Brand Finance focused specifically on the pandemic’s impact on hotel brands. The company said COVID-19 will “wreak havoc” on the lodging industry “both financially, as hotels are forced to close and bookings are cancelled and, reputationally, as brands that do not manage to avoid association with COVID-19 may suffer lasting reputational damage.”

Hotel and other lodging brands that have facilities that easily can be arranged to enable, or that are known for facilities that already enable better to social distancing protocols – like resorts and extended-stay properties - will do relatively better and recover more quickly, according to D’Souza. Those facilities that are built to serve large numbers of guests at once, or to facilitate large public gatherings and higher levels of guest traffic through public spaces, will do worse during the balance of this year and perhaps beyond.

Similarly, those hotel brands that tend to have more of their properties located in major markets, and in prime locations within major markets will be more heavily impacted that those brands with properties more heavily concentrated in suburban areas and/or in secondary markets. That, D’Souza explained, is because it expects leisure travelers now to favor secondary destinations as a way of avoiding the larger crowds associated with major markets, and business travelers to favor smaller, suburban lodging properties over city center hotels designed to host large numbers of guests.

That new, far more intense concern about health, cleanliness and disease-avoidance is not surprising in light of the pandemic and the media attention it has received since February. Still it is remarkable given the both the degree and the speed of the adjustment of travel consumers’ attitudes.

By early April demand for air travel – which serves as a reasonable proxy for overall travel demand – had fallen by more than 90% from the same period in 2019, with fewer than 100,000 people passing through the nation’s airport security portals manned by Transportation Security Administration offices. Since bottoming out several weeks ago, demand slowly has been creeping up. And on Friday the TSA reported that it screened 318,449 people at U.S. airports. That’s more than triple the number of screenings at the low point a month earlier. But it’s still down 88% from a year ago.

The changes in travel demand in the U.S. also are evident in the results of a new survey out Tuesday that showed that about two-thirds of respondents to the survey cited social distancing as their top priority now during travel. About half of those responding also listed air quality and personal protection equipment.

That survey was conducted for Honeywell, maker of a wide variety of aircraft mechanical and electronic systems, including airplane cabin air filtering systems. But while the survey focuses only on travelers’ health and environment concerns related to airplanes, it stands to reason that travelers would have very similar concerns about their lodging facilities as well.

Almost 60% of respondents to that Honeywell survey of more than 700 frequent fliers cited social distancing as their top priority during travel, while about half said air quality (51%) and personal protection equipment such as masks (47%) are top priorities. They also said their most-desired safety items during travel were masks, hand sanitizer and alcohol wipes.

As for U.S. hotels’ brand value, Hilton – the specific name brand chain, not the larger Hilton Worldwide group of nearly 30 distinct brands – entered 2020 with $10.83 billion in brand value alone, according to Brand Finance.

No. 2 Marriott – again, just the individual brand rather than the Marriott International group of 32 hotel brands – had $6.03 billion in brand value.

In fact, seven of the top hotel brands in the world by brand value are U.S.-based. In order, behind Hilton and Marriott, they include No. 3 Hyatt ($4.53 billion in brand value); No. 4 Holiday Inn ($4.5 billion); No. 5 Hampton Inn ($3.87 billion); and No. 7 DoubleTree ($2.4 billion); No. 9 Courtyard ($1.77 billion). No. 6 Shangri-La ($2.47 billion) is based in Hong Kong, China. No. 8 Mercure ($2.33 billion) is based in France. And No. 10 InterContinental ($1.74 is based in the United Kingdom). Hampton Inn and DoubleTree are both units of Hilton Worldwide while Courtyard is part of Marriott International. Hyatt is the largest unit in the Hyatt Hotels Group. Holiday Inn is a U.S.-based unit of IHG, the parent of InterContinental and a dozen other brands. Mercure is part of France’s ACCOR group of hotel brands. Brand Finance tracks hotel brand values by individual brands rather than by the larger hotel groups.