CARES Act: Implications for travel, transportation and hospitality companies

The COVID-19 crisis has been a shock to the system on every level for travel, transportation and hospitality (TTH) companies. I’ve been hearing from many of you that you are working around the clock to do the right thing by your stakeholders — employees, customers and business partners. I’ve heard your anguish at having to make the painful decision to furlough large portions of your workforce because of the dire situation the industry is in.

The $2 trillion CARES Act is available to assist TTH companies as they respond to the crisis, support workers and stabilize finances. Among its provisions are:

●      $25 billion in loans and $25 billion in grants for passenger carriers

●      $4 billion in loans and $4 billion in grants for cargo carriers

●      $3 billion in grants for airline contractors

●      $10 billion in economic relief for eligible airports

●      $377 billion in overall small-business aid, which includes franchisees and individual hotels

Among the tax implications analyzed by PwC are the following: 

●      Net operating loss 5-year carryback

●      Temporary refundable employee retention credit

●      Delay on payroll taxes

●      Expanded business interest expense deductions

These provisions bring much-needed relief to TTH companies, but there are also conditions to think through. Below are some considerations for navigating the details:

1.    Keep your workers safe

The CARES Act includes a variety of provisions to protect workers. That could mean keeping them on payroll, even if they are not currently working. Meanwhile, some employees still need to work on site, and keeping them safe is essential. With the appropriate technology, you can stay connected to your workforce while obtaining a near real-time view of productivity. 

At PwC we’ve launched an app that helps pinpoint anyone who may have come in contact with someone who is sick. Anyone experiencing symptoms of illness can report in immediately, allowing leadership to take immediate action and limit the risk of further exposure. 

For employees now working remotely, cybersecurity takes on new meaning. In-home technology may not be secure enough to transfer sensitive information online, and several companies have already seen attacks increase on their systems. Taking the right steps for cybersecurity can ensure a cybersafe remote work environment.

Meanwhile, furloughed employees — used to seeing team members every day — may need support to stay engaged and keep their skills current. From digital upskilling to seamless virtual communications, the technology exists to ensure employees stay connected during this challenging time.

2.    Choose the mix of funding that works for your company

The CARES Act offers significant funds, but the paperwork can be complex, the money may take time to arrive, and certain conditions apply. These include prohibitions on:

●      Buying back shares

●      Raising executive compensation

●      Furloughing or laying off workers — under the Payroll Protection Program, funds have certain restrictions, for example, they are required to be used for payroll and other monthly expenses such as rent.

If you’ve already had to furlough workers, you may still be able to qualify if you bring them back within a certain timeframe. Some loans may also require collateral and interest, with rates similar to market rates.

Despite these limitations, the grants and loans provided by the CARES Act can be essential for many TTH companies’ viability. Meanwhile, self-funding and external funding can also play a role. Some of the tax benefits of the CARES Act — such as the change in business interest expense deductions — can reduce borrowing costs significantly.

3.    Provide support for franchisees

The $377 billion in aid for small businesses can be used for payroll, mortgage, rent and utilities. The loan is eligible for forgiveness provided certain conditions are met in the period following loan origination — including maintaining employment and pay levels.

However, many franchisees and individual hotels are limited in their resources and unable to apply in a timely manner. The companies under whose umbrella they operate can offer a franchisor solution (at PwC we’ve launched the CARES Command Tool) to manage advice, PMO and tool capabilities to expedite your application.

TTH companies can set up a system to monitor progress on CARES Act applications for their franchisees. This will provide support as needed, while also providing updated communications to stakeholders and the government.

Going the distance

Workforce considerations and financial stability are clearly top of mind right now — and the CARES Act offers valuable benefits for both. For stability in the months ahead, however, you’ll also need to assess your entire ecosystem: customer operations and marketing, your supply chain, and even your competitors. In a post-Covid world, one thing will be constant: the travel landscape will have changed. And those companies that will rise to the top will have learned to stay afloat, adapt, and invest in some key capabilities.