April 29, 2020 by Luke Mason
The economic impact of COVID-19 on hospitality (one of the first industries to get slammed) is a tale told only in astronomical numbers. With scant passengers rattling around inside empty airplanes, hotels abandoned, and thousands of weddings—usually considered recession-proof—postponed, hospitality is losing an average of $534 million in earnings and over 12,000 jobs every day.
These numbers are based on a projected estimate of the losses hospitality will suffer if they remain shut down for a total of three months (March, April, May), and divided by 92 (days) to find the daily average. By the way, that’s not even counting the food & beverage sub-sector, which we considered separately and is losing $2.8 billion per week.
But economic impact, both good and bad, is like yeast. Or dominoes. It doesn’t stay in one place. All told, with hospitality hitting the skids, the US economy is losing an average of $923 million in earnings and nearly 17,000 jobs a day, once you factor in the ripple effects among supplier industries.
Obviously, some of these dollars and jobs will start to trickle back in as the economy cautiously reopens over the coming weeks. However, with so much uncertainty, we don’t know how much long-term business will be lost.
Note also that these are estimates of the economic impact of COVID-19 on hospitality. Ultimately, the numbers could end up better—or worse. Since it’s unlikely that industries will bounce back to business as usual by the end of May, the long-term impact could be even more severe than this three-month assessment anticipates.
In terms of both jobs and economic impact, hospitality is a behemoth with four main sub-sectors:
In 2017, the travel & tourism sub-sector alone generated $1.6 trillion in economic output in 2017, supporting 7.8 million US jobs. So the shutdown of it and its fellow “nonessential” industries has a bit of grim irony.
For the shutdown’s impact on food & beverage, see our recent analysis. In this blog post we’ll consider the three remaining sub-sectors of the US’s devastated hospitality industry: travel & tourism, lodging, and recreation.
We use nicknames for various industries in this article. See our index with full NAICS titles and codes.
What will the impact be if the hospitality industry stays fairly locked down for three months: March, April, May? We used Emsi’s input-output model to find out.
The initial impact, of course, will strike the hospitality industries themselves, to the tune of 1.2 million jobs and $50 billion in earnings. But the direct and indirect losses will dwarf those losses by cascading into supplier industries.
All told, the US economy will lose 1.6 million jobs and $84 billion in earnings if the hospitality industry remains cut off at the knees through May.
The next two charts break down the consequences as hospitality’s losses travel in shockwaves into other industries. The first looks at the loss in in jobs, the second looks at loss in earnings.
Hotels, RV Parks, Bars, Restaurants, and Caterers will lose nearly 640,000 jobs (4% decline from 2019) and $22.5 billion (6% decline). Airlines, Railroads, Ocean Freighters, Trucking, and Taxis will lose 196,000 jobs and $17 billion. Office Admin & Business Support will lose 198,000 jobs and $10 billion. Even seemingly unrelated industries like Real Estate (-50,000 jobs, -$2.2 billion in earnings ) will feel the repercussions.
Now let’s zoom in. By the end of May, how will the shutdown have affected specific industries within hospitality?
Let’s start with a snapshot of the status quo as of 2019.
Hotels employed the most jobs (1.7M), while cruises and airlines offered the highest average wages per job ($120K and $113K per year, respectively). A number of hospitality industries have a high jobs multiplier, meaning each job in these industries creates a significant number of other jobs elsewhere. Cruise lines, for example, has a jobs multiplier of over 18, so every job in cruise lines creates 17 other jobs.
By the end of May, hotels and airlines are the two industries that will bear the heaviest losses in terms in sales.
Airlines are projected to lose the most at $218 billion. On April 20, United Airlines posted a preliminary $2.1 billion loss for the first quarter alone (January-March). Delta also recently announced that their Q1 revenue is down 18% from 2019, and that they are burning through $100 million in cash every day. Our analysis looks ahead to most of the second quarter (March-June), by which time airlines like United and Delta will have suffered even more.
Hotels will lose $215.5 billion in sales. Indeed, for hotels, the lockdown has already been worse than post-9/11 and the Great Recession combined. According to Chip Rogers, the CEO of the American Hotel & Lodging Association, the two previous crises led to about 10% declines in hotel occupancy, whereas COVID-19 has caused declines of 80% and 90%.
Which hospitality hubs are getting hit the hardest? The chart below features the MSAs with the greatest number and/or the highest concentrations of hospitality jobs. Due to the prominence of hospitality in these areas, these cities will likely experience the sharpest economic pangs derived directly from the losses within hospitality.
A note on concentration. Measured in terms of location quotient (LQ), concentration tells you the uniqueness or specialization of an industry in a particular economy compared to the national average. The higher the concentration, the more vital the industry likely is to that economy.
Las Vegas, a global leader in tourism, is the mightiest hospitality center in the US in terms of sheer number of jobs (186,000). However, Vegas’s hospitality industry shed over 1,500 jobs from 2014 to 2019, perhaps due to the recent decline in visitors—before the virus. In 2016 the annual visitor count hit a record high: 43 million. Yet that number dropped 1% in 2017. This may not seem like a big deal, but that 1% drop represents a loss of 722,000 visitors. After COVID-19 has done its work, what will the damage be? Time will tell. But with the economic shutdown targeting such a key industry, Vegas might face a particularly difficult recovery.
Hospitality is also a critical economic driver for Los Angeles, where the industry grew a whopping 23% (+33,000 jobs) from 2014 to 2019. Since hospitality is such a force, the pain of its losses may be especially acute in LA, already with over 50% of its residents unemployed.
New York, though battered by the virus itself, might not feel the pinch in terms of hospitality quite so uniquely as LA or Vegas, thanks to an economy bolstered by finance, healthcare, IT, and others.
Other MSAs may not have as many hospitality jobs as sprawling mega monsters like Vegas or LA, yet hospitality is highly concentrated and is an even bigger deal to them—MSAs like Honolulu (3.11 LQ), Atlantic City (10.76 LQ), Kahului-Wailuku-Lahaina on the island of Maui (9.52 LQ), and Key West (8.04 LQ).
A lot of Gen X workers (and a few upper millennials, too) are getting sucker-punched, since many hospitality jobs employ workers who are ages 45-54. Over the next few months, higher education institutions might well see an influx of nontraditional students as these displaced workers in their 40s and 50s seek retraining and upskilling.
The COVID-19 crisis and the great shutdown are like a tsunami. Right now, we’re all trapped in our houses, but sooner or later the water will recede and we’ll be cleaning up a huge mess. How can you be ready?
Emsi is busy strategizing ways that people can work together to rebuild the economy. Check out our plan on how higher education, regions, and businesses can use data to help people prepare to get back to work.
For the most up-to-date look at how the labor market is responding to COVID-19, visit our free job posting dashboard. Check out the economic impact of COVID-19 on restaurants and grocery stores. You can also find more COVID-19 research, tools, and webinars on our COVID-19 resources page.