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Hotel brands are pausing development in Russia, but they aren’t pulling out completely

Marriott, Hilton and IHG said they will put future projects on hold, but shuttering current hotels is more complicated

(iStock/Washington Post Illustration )

Several major U.S. companies, including Coca-Cola, Starbucks and McDonald’s, have announced in recent days that they are suspending business in Russia following the invasion of Ukraine. Big U.S. hotel chains have also made changes to their business, but shutting down isn’t so simple, experts say.

Unlike some companies that have cut ties completely with Russia, U.S. hotel companies are primarily putting future developments on hold, rather than shutting down operations.

Dozens of corporations are still in Russia. It’s getting harder for them to leave.

Marriott International announced last week that it would immediately “pause the opening of upcoming hotels and all future hotel development and investment in Russia.” Others including Hilton, Hyatt and InterContinental Hotels Group have all made similar moves.

Marriott, Hilton and IHG also said they would close their corporate offices in Moscow.

A spokesperson for IHG said employees in the company’s Moscow office will work remotely and continue work related to other places, such as the Baltic states. Hilton said in its statement that with its Moscow office closed, the company “will ensure continued work and pay for any impacted Team Members.”

Marriott did not respond to a request for comment on how the closure of its Moscow office would impact staff.

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Typically, big hotel chains don’t own the properties that bear their names; the buildings are owned by a third party and operated by the brands or an outside management company. Contracts between hotel brands and owners can vary, which could complicate closures.

Marriott said in a statement that its hotels in Russia are owned by third parties and that the company continues “to evaluate the ability for these hotels to remain open.” Hyatt similarly said it will assess its “existing management agreements with the third-party entities that own Hyatt hotels in Russia” as the situation evolves, while complying with relevant sanctions and directives from the United States.

A Hyatt spokesperson also told The Washington Post that “in terms of the five Hyatt-branded hotels owned by third parties and currently operating in the country, we will continue to support our colleagues in Russia as they continue to care for hotel guests.”

Joshua Bush, CEO of travel agency Avenue Two Travel, said he sees the decisions to halt future projects as both practical and symbolic.

Bush said some of these U.S.-based companies may be taking considerations for expats working at the hotels and how they could get them back home.

“But it’s also an act of solidarity,” Bush added, “to say that we stand with the Ukrainian people.”

Joanna Piacenza, head of industry intelligence at Morning Consult, said that with the conflict top of mind for so many people at the moment, “the lost sales for companies that come with pausing are nothing compared to the reputational risk.”

Michael Bellisario, a senior equity research analyst at Baird covering the hotel sector, said pulling out of the country is more complicated for hotels than for other kinds of businesses such as restaurants. “In some cases, the big brands are operating the hotels, and in some cases they’re … franchised,” he said. “And it’s not as simple as, ‘Hey, we’re done.’ ”

Last week, McDonald’s and Starbucks both announced that they were temporarily suspending operations in Russia. McDonald’s owns and operates 84 percent of its 850 restaurants in the country, while Starbucks’ 130 Russian stores are owned and run by Kuwait-based franchisee Alshaya Group.

McDonald’s didn’t just close 850 restaurants in Russia. It froze a whole 30-year investment.

Bellisario said the business structure is different for hotel brands than for companies such as McDonald’s or Starbucks, and no one on the outside can know the nuances of contract agreements between third-party owners and hotel brands “because we don’t know the terms of the contracts and who the owners of the properties are and where the termination rights are and aren’t.”

Bellisario said future projects, on the other hand, are easier to pause or terminate, even if it means someone is eating interest expense, development costs and property taxes. And with a wide range of potential outcomes in the coming years, he said, “How does anyone even consider investing any incremental dollars in the country today?”

Bush noted that the situation creates a balancing act for companies.

“By closing those offices, it sends a message that lets people know that this is not business as usual, but at the same time you don’t want to punish those people that had nothing to do with this,” he said.

Hotel brands have also made humanitarian aid commitments. Hilton said it will donate all profits from business operations in Russia to relief efforts for Ukraine. Hyatt said it is working to provide housing for refugees and financial assistance for impacted employees, among other efforts, while Marriott, Hilton and IHG have all taken similar steps.

For employees working in hotels’ corporate offices, they generally cover a region, Bellisario noted. While he could not say for sure, he expected those kinds of office closures would not lead to layoffs since he thinks the companies probably have small teams in Russia and there are “other growth opportunities” in surrounding areas that those workers can be reassigned to.

However, Piacenza said, we can’t be sure what the full impact for employees will be. “It’s too early to tell whether these pauses will equate to complete shutdowns or layoffs, but it’s certainly within the realm of possibility — especially if this pause stretches on for months,” she said.

Bush said he expects the hotels to continue catering to domestic travelers within Russia, but he noted that he does not have any clients — whether leisure or business travelers — interested in going. He said the decrease in demand will have an impact, and hotels there might close, even if temporarily, or reduce employees.

Bellisario said that as hotel brands’ contracts expire with third-party owners, they may decide to withdraw from Russia and take their name off hotels. The companies could also decide to sell the rights to their contracts to another brand to get out sooner, but that would require the approval of all owners.

Overall, Bellisario said, for massive brands such as Marriott and Hilton, Russia represents a small percentage of their portfolios, and there will not be major financial repercussions from them scaling back or losing business there. “It’s much more of a headline issue and impact than it is a financial impact for the hotel brands at this point,” he said.

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