Lots of travel brands are eligible to earn U.S. government money through the so-called CARES Act. But firms will need to move fast to get their share. Here’s how it could all shake out.
President Donald Trump last week signed what is now known as the CARES Act, a massive $2 trillion stimulus meant to keep the U.S. economic engine running despite concerns about coronavirus.
As businesses will receive a good portion of that money — individuals will receive about $600 billion, according to one estimate — now comes the complicated part for companies. They must apply for money with U.S. government agencies, which will be tasked with deciding what businesses will receive aid, and how much. That will be no small feat, as the law is not always clear about what companies are entitled to money.
All kinds of businesses have the right to make claims. But travel is at the forefront, with legislators creating special piles of money for industries hit hardest, including airlines, airports, and even travel agents. Travel businesses from segments not expressly named in the bill also will jockey for money, hoping they can apply for grants and loans to keep afloat until the coronavirus pandemic passes.
How much travel businesses receive, and how they deploy the funds, will determine the industry’s landscape for decades to come. Some will survive. Others, probably many small businesses that make up the majority of travel, won’t be as lucky.
Here's what it means for hotels:
Individual hotel owners and big chains also will get a boost from the CARES Act, but insiders say the law offers short-term funding to an industry that needs a longer-term stimulus.
Hotel operators are included in the group eligible to tap into federal small business loans set aside for businesses negatively impacted from coronavirus. A provision was added in the bill to enable many one-off hotel operators to qualify for small business benefits even if they operate under the flag of a larger brand like Marriott or Hilton. The large brands are not eligible for these federal loans.
“We have been advocating on behalf of these small business owners for the (U.S. Small Business Administration) emergency loans that will allow them to remain solvent while operations are suspended at their hotels,” a Hilton representative said last week.
These SBA loans are capped at 250 percent of a hotel’s monthly payroll. Loans are subject to forgiveness, meaning they don’t have to be paid back, if hoteliers re-hire employees by June 30. The measure comes as many brands have had to lay off tens of thousands of hotel staff and corporate employees.
But the relief package likely won’t give the industry enough of a lift to get back to pre-coronavirus performance levels, according to one hotel trade group CEO.
“We’re very grateful. The industry has never seen anything like this, so we need a remedy unlike anything we’ve ever needed,” American Hotel & Lodging Association Chip Rogers said. “It’s definitely a lifeline. Calling it a stimulus package, I wouldn’t agree with that. Hoteliers are in survival mode right now. At some point we’ll need an actual stimulus package.”
The trade group wanted the small business loan cap at a higher 400 percent monthly payroll rate in order to give operators the ability to address debt payments as well as keep most employees on payroll. Given the uncertainty on when travel restrictions will be lifted, the organization also emphasized a need for a longer timeline to recall furloughed employees.
“We don’t expect the industry to be back by June 30,” Rogers said. “By pushing that back to something later like, say Sept. 30, it would allow the industry to get back to full employment and not face financial penalties.”
Larger hoteliers weren’t entirely ignored by Washington. The new law’s Coronavirus Economic Stabilization Act of 2020 subset offers $454 billion in liquidity to affected industries like the hospitality sector.
The measure is meant to keep workers on payroll at mid-sized companies with between 500 and 10,000 employees. To be eligible, a larger hotel company would have to use funds to support business operations and keep 90 percent of its workforce with full salaries and benefits through the end of September. This package comes with oversight measures like salary caps as well as bans on stock buybacks while loans are outstanding.
Experts said it could take weeks for hoteliers to get more clarity on the package aimed at larger companies. In the meantime, smaller operators and employees will at least see some degree of improvement in coming weeks.
Written by Brian Sumers
Skift, March 30, 2020
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