The Economics Reason Why 1000 New Hotels Have Opened During Covid-19 [Roundup]

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News and notes from around the interweb:

  • Lots of folks shared this Bloomberg piece on why so many new hotels – about 1000 – have been opening during the pandemic. Hotel owners already have the land and the construction, they’re on the hook for mortgage and property tax expenses. It comes down to ‘capital-intensive industries have high fixed costs and lower marginal costs’ so while a new hotel is a bad investment right now, once you’ve got one you might as well open it – if you can cover the payroll and extra supplies and utilities.

  • Some people think the TSA is so effective that it should become a public health agency too.

  • United Airlines drops craft beer from premium cabins come on, you know this cost cutting was coming even before the pandemic, right?

  • Delta co-brand American Express cards have new limited-time spending rewards you can register for.

    • Delta SkyMiles® Gold American Express and Delta SkyMiles® Gold Business American Express earn 4x at restaurants (including takeout and delivery) and 5x on Delta Purchases. Register

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  • 25% bonus transferring Citibank ThankYou Points to Avianca LifeMiles by September 18. It appears that LifeMiles is funding the bonus, as a way of getting Citi purchasing more miles from them.

  • New York City may begin pulling homeless out of its hotels

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  1. Even beyond the reasons you (and Bloomies) give, the outlook for opening a new, already built hotel pencils-out better than you’d think, because a new hotel does not split the pie with existing hotels in the market. It steals market share from the other hotels, because a new hotel room always commands a premium.

    I saw this little demonstration of microeconomics first-hand at the bottom of the market back in April. The local Springhill and Townplace Suites closed, and the Staybridge _barely_ managed to stay open, but the brand-spanking-new Residence Inn stayed nearly 75% occupied.

    However, looking forward, in general the hotel industry always overbuilds in the good times. A lot of capacity is still in the pipeline, and for years going forward I’m sure the industry is going to underbuild to compensate.

  2. There’s an old cliche about the hotel industry: The second owner of any hotel is the one who makes the money. That will undoubtedly play out for many of the 1000 hotels that have opened during the pandemic.

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