Tags: vacation | resort | hotels | summer

Vacation Resort Hotels May Be in for a Cruel Summer

Vacation Resort Hotels May Be in for a Cruel Summer
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By    |   Thursday, 28 June 2018 12:00 PM

With a few days to go until the July 4th holiday, consumers are leaning into summer vacation season and for investors that means revisiting travel-related stocks ranging from airlines like American Airlines (AAL) and Delta Air Lines (DAL) to rental car companies such as Hertz Global (HTZ) and of course hotels such as Hyatt Hotels (H), Marriott International (MAR) and Choice Hotels (CHH).

There are also the various products, lotion and sprays like Coppertone from Bayer and others.

With rising fuel costs, airlines are likely to see some margin pain in the short term, which likely means they'll underperform. We don't have that problem with car rental companies, but the year-over-year increase in gas prices could put a crimp in some travel plans. Despite all the wants and wishes for a summer vacation, almost half of Americans say they don’t plan on taking a vacation this summer according to data published by Bankrate, largely because they can’t afford it.

While hotels may feel the indirect pinch of higher gas prices, they are dealing with another problem all together -- the sharing economy and Airbnb.

As anyone who has stayed at a hotel recently, you know there is the tax component to the final bill. In my experience, it tends to be snuck in at the end and can pack quite a wallop depending on where one is staying.

For example, the Hotel Room Tax, which is collected by hotel operators, in New York City is 14.75%. Only slightly better the Hotel Room Tax in California is 14%. Generally speaking, on top of their room charges travelers are hit with a state hotel tax, local hotel tax and state sales tax.

Moreover, these taxes have been on the rise over the last several years, making travel even more expensive for cash-strapped consumers.

That helps explain the allure of Airbnb to consumers who are contending with pressured disposable income and low savings rates as they service student debt, auto loan debt and credit card debt in what is an increasing interest rate environment.

Good for the consumer, but unless Airbnb begins collecting comparable taxes like its hotel counterparts, it looks very much like digital retailers not collecting sales taxes while their brick & mortar counterparts have had to.

Oh, that’s right, the Supreme Court just gave states authority to require online sellers to collect sales tax. One has to wonder how long until the likes of Airbnb will have to do the same. Of course, there are other issues with Airbnb, such as safety and that's before we talk about zoning and other safety standards.

Amid the escalating tariff situation and waiting for something to kickstart infrastructure spending, I'll be watching in Washington, D.C. over the summer months to see if this notion of crony capitalism -- giving one business preferred treatment - is addressed.

Until it is, odds are cash-strapped travelers will flock to discount airlines and seek our cheaper lodging alternatives such as Airbnb to try to get some semblance of summer vacation. As an investor, it’s looks like a one-two punch combination to hotels and their prospects for revenue and profits this summer.

Christopher (Chris) Versace is the Chief Investment Officer at Tematica Research, editor of the newsletter Tematica Investing, co-host of the Cocktail Investing Podcast and is a featured columnist to The Street.com as well as a contributor to Business Insider and Forbes.com.

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While hotels may feel the indirect pinch of higher gas prices, they are dealing with another problem all together -- the sharing economy and Airbnb.
vacation, resort, hotels, summer
Thursday, 28 June 2018 12:00 PM
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