During the COVID-19 crisis, many hotels will unfortunately have to stop their operations and close temporarily. This can be out of necessity if your forecasts suggest the losses experienced at these low occupancy levels are not sustainable. While closing down several floors could have saved enough variable costs in the past, the introduction of systems such as LED lights have made these savings minimal and insufficient in the current crisis. In many European countries, such as the Czech Republic and Spain, all hotels have been ordered to close by their governments. While companies like Marriott and IHG have already reopened over half of the hotels they previously closed in Greater China, we expect a larger amount of hotel closures in the US over the next few weeks.
We’ve put together a brief checklist for every hotelier faced with the difficult decision of a hotel closure.
1. Review your current hotel management, operating, loan or lease agreements to make any necessary adjustments.
Identify any key provisions that can be affected, paying close attention to “force majeure” or "materially changed circumstances" clauses in all the agreements listed.
Check your current liquidity to ensure it can satisfy any immediate needs, such as taxes and payroll. You should forecast your yearly P&L and cash flow statements using several scenarios with varying re-opening dates. Once these documents are ready, it is important you update your investors and lenders on what your capital needs could be. This shows that you are proactive, aware of contract clauses and debt covenants, and that measures are being taken accordingly. Many banks are practicing goodwill; see whether you can benefit from delaying your loan repayments, debt moratoria, overdrafts and other lines of credit. When making new contracts, reflect on how to communicate regarding the virus, considering that it is no longer seen as an unexpected event.
2. Review your current HR needs and any necessary terminations.
Pay attention to employees’ current benefits, payment addresses and severance options if the termination is deemed necessary. Ensure you check and comply with your local governments’ unemployment policies and see whether there are any schemes available to support those laid off. We also suggest you consider alternative working arrangements for your employees; while corporate and admin personnel can work from home, there are still ways you can re-deploy and improve your on-property operational staff. Identify any essential tasks that cannot be performed remotely and search for ways with the affected staff to find solutions. We will be exploring this topic further in an article next week.
3. Contact all suppliers and modify or terminate your order to suit your current operating needs.
While variable costs should be cut immediately, we advise you to attempt to limit your fixed costs and explore the possibility of negotiating credit terms or payment reductions. It is best to delay all payments to the hotel’s re-opening when the cash inflows are in effect once more. Your Head of Purchasing should engage in honest, ongoing conversations with suppliers and ensure their on-boarding for the re-opening. Review the possibility of buyback programs to reduce your current inventory. Some hotels and restaurants, most notably Walt Disney World, have received publicity and praise for donating their excess food inventory to local food banks [i]. Of course, ensure you check your government’s relevant hospitality food surplus redistribution guidelines when considering this option.
4. Consider your current tenants.
Communication is key with any retail, F&B or other leased outlets before and during the closure. Address any payment issues that your current tenants might have and be forthcoming. We suggest, for instance, that you let them pay 50% of the rent and that the rest can be paid monthly until the end of the year. You don’t want to lose any good tenants and it is important to show goodwill, especially when expecting goodwill from your own investors or lenders. Inform them well in advance of the re-opening.
5. Contact any pending reservations during the forecasted period of closure.
Reach out to the guests and inform them of your reasoning. It is best to be as flexible as possible with booking deposits and returning them as per the booker’s request, while still encouraging guests to change the booking to an indefinite date in order to keep some cash flow. Ensure your own website has a clear message of the hotel’s temporary closure when entering the booking engine and inform your OTA channel representatives as well.
6. Evaluate available insurance claims which may continue to evolve based on government intervention.
The most relevant policies include Business Interruption, Contingent Business Interruption and Civil Authority coverage [ii]. Insurance coverage varies amongst operators and it is good to speak with other owners. It is crucial to check the fine print of your Business Continuity Insurance and consider decreasing your monthly payments during the closure as there are no guests in-house.
Make sure to verify whether the hotel must be occupied at all times for insurance coverage. If yes, you will have to schedule a few employees or security personnel to constantly be on the property.
7. Remain informed of all government orders and Business Relief programs, and sign up if applicable.
Monitor regulations on a daily basis, keep note of the decree on accommodation providers and their effective dates. Many European countries, including the UK, have either postponed the deadline or will waive penalties for late VAT returns [iii].
8. Operational procedures.
When cleaning all areas of your hotel, refer to your government’s guidance for disinfection and cleaning in non-healthcare public facilities against COVID-19 [iv]. It is recommended to continue cleaning the hotel a minimum of once a week during walkthroughs while it is closed. Digital checklists for hotel closures, maintenance, cleaning and more are being released on various apps, such as ALICE and the Whispr app offered for Beekeeper clients [v], [vi]. We will post more information when we have fully explored the housekeeping aspect of the COVID-19 calamity.
Examples of actions to take are as follows [vii]:
Empty and disinfect all trash bins
Deep clean all areas and surfaces
Clean, disinfect and remove all display items or furniture
Set the thermostats to ~20 °C
Set all exterior and lobby lighting on timers
Remove all food from the fridge so it can be cleaned and turned off
Sanitize and completely cover all kitchenware, glassware, cutlery and dinnerware
Place all meeting room furniture into storage
Unplug guest laundry machines and turn off water access
Unplug all guestroom lighting and equipment
Remove decorative bedding
Remove, disinfect and store all guest bathroom amenities
Flush toilets regularly
Lock all guestrooms and secure all access
Shut down pool equipment and cover, but keep safety equipment in place
Display hotel closure signs throughout the property
Most hotels are delaying their regular renovations to mitigate financial impacts 1&2, but you may look into small upkeep tasks such as repainting