The impacts of COVID-19 have been felt far and wide across industries around the world, especially so for the travel and tourism industry. As the hospitality sector reels from the effects of this global pandemic, the million-dollar question has shifted from simply “When will we recover?” – to exactly “How will we recover?”
On May 13, Cushman & Wakefield’s hospitality team held an exclusive webinar for its clients, addressing the first of many steps to recovery – planning for the reopening of hotels. As we prepare for what is likely to be the largest-scale rapid reopening of hotels in modern history, it will certainly be more complicated than putting up the ‘Open for Business’ sign. So, what are the key considerations in this process? With the challenges but also opportunities that have presented themselves amidst this crisis, what could be in store for the future of our industry?
There’s more to it than meets the eye
Even as countries around the globe begin to relax some restrictions, the rules on who can travel, from when and under what conditions remain fairly unclear and subject to change. With many markets across Europe relying on international travel, it comes as no surprise that the audience agreed in a poll that two of the biggest roadblocks are estimating when and how demand will pick up and the lack of clarity when it comes to government restrictions. And, as if this uncertainty were not enough, it seems that the road to recovery will not be a smooth one. In fact, rather than a steady gradual occupancy increase, hoteliers may be in for a rollercoaster ride. As revealed by Stefan Leser, CEO of Langham Hospitality Group, notable highs and lows in performance can be a challenge to running an efficient operation after re-opening, with some of their properties in China recording strong peaks during the major holidays with occupancy levels up to 70% in city hotels and reaching near full-capacity in resorts, but then quickly falling to as low as mid-20% within a few days. Therefore, it is important that hotels remain vigilant about managing costs, even if recovery may seem to be in sight. Desmond Taljaard, Managing Director at L+R Hotels, even described how some hotels have had to ‘yo-yo’ between opening and closing up to 4 times over the last 7 weeks due to unpredictable needs and demand. As Leser explained, one of the biggest challenges is “Making sure that the losses are not greater when you are operating than when you were closed”.
Source: Cushman & Wakefield Research (based on 104 responses of the webinar attendees.)
Evidently, this crisis has been like no other and the coordinated efforts of the various stakeholders will remain key. This includes not only the owners, operators and banks, but also suppliers and authorities. As Elias Hayek, Head of Global Hospitality and Leisure at Squire Patton Boggs cautioned, pre-agreements need to be established, supply chains must be secured as many hotels reopen at similar times, and owners and operators should lay out the detailed cost implications and responsibilities that will be incurred. Because of how hard and fast the hotel sector was impacted, many hotels may have closed in what Elias Hayek coined a “knee-jerk reaction”, without having much time to consider the parameters and relationships that would be affected during the closure period and by the closure itself. But as the industry now anxiously looks towards recovery, these are certainly important details that should not be overlooked.
Unsurprisingly, the specificities of each hotel will also play a significant role in the shape of recovery. Regional or domestic demand-driven destinations are likely pick up more quickly, select-service hotels will probably make a comeback before more upscale hotels, while business and conference hotels may face greater challenges. Finally, the timing of the reopening also has to be in line with seasonality: reopening in the middle of a low season could incur more costs than revenues.
Which roads lead to Rome?
The complexities of reopening lie far beyond anticipating when restrictions on businesses and borders will be lifted, getting your staff ready and opening the doors. Above all, there are strategic decisions to be made and opportunities to seize, and a savvy hotelier should be able to navigate the short, medium, and long-term considerations to take the high road to recovery.
Given the sheer number of hotels looking to reopen, strategic decisions should be made in regard to whether the reopening of hotels could be staggered to consolidate this cautious demand, especially for owners with multiple assets. Guy Phillips, Sector Head of Hotels, Origination & Client Coverage at Santander explains, “A greater level of delay to opening could be more beneficial if you’re only going to be opening at a point where there are a lot of other challenges and the level of cash burn is actually going to increase.” He emphasized that conversations need to start early and that banks should be partners in supporting in these decisions. To take it a step further, this could also be a time for a reassessment of long-term strategic goals, which may question whether some hotels should even reopen at all. In fact, 71% of the audience believe that 5-15% of hotels may find themselves permanently closed due to this pandemic. A sad story for some, but good news for others as it means less competition during the difficult recovery stage.
Source: Cushman & Wakefield Research (based on 70 responses of the webinar attendees. None of the respondents selected ”0%”)
For every optimist who sees the glass half-full, there is also a major opportunity amidst the crisis. As Desmond Taljaard pointed out, hoteliers need to question their traditional thinking on how to operate hotels. Necessity is the mother of invention, and hotels can come out from this crisis more efficient and resilient. It is clear that hotels will initially have to operate with heavily reduced services and amenities, more like 'bedroom factories'. But the question is, or should be, do we need to roll back all the perks, and would the guest mind if they are gone forever? In addition, this could well be the time to invest in technology that streamlines processes and drives further operational efficiencies, before delving into the rehiring and retraining process. This crisis has challenged hoteliers to rethink the confines of hotel rooms which quickly became quarantine apartments, offices, rooms for key workers, and in turn, demonstrating the flexibility and adaptability of hotels. And now with this opportunity to hit the reset button by better distinguishing the needs from wants, there is a high chance for hotels to create a better way forward for the industry.
What’s next: Travel package to your doorstep?
With empty streets in even the most popular tourist destinations, it would be easy to cast a dark shadow over the hospitality sector and its future. But as Stefan Leser said, “What we loved before the crisis, we will still love after the crisis”. Humans are explorers and wanderers, it is part of our genes, which ultimately underpins the travel industry. Despite the different backgrounds of the panelists, they agreed that the resilience of the hotel sector lends great confidence into the future of this industry. This sentiment was echoed by the audience, of whom nearly 80% do not believe that COVID-19 will have any long-term impact on the industry.
Source: Cushman & Wakefield Research (based on 74 responses of the webinar attendees. None of the respondents selected ”No impact”)
It may be possible to receive flowers, books and a new TV on your doorstep, or complete a client project from the comfort of your home – but who could deliver a package of travel experiences? The undeniable reality is that if you want to see Paris from the top of the Eiffel Tower, walk on the Great Wall of China or build those lasting relationships with your key international clients, you will have to travel. Although we are likely to see a temporary shift in travel patterns, with humans’ innate curiosity to see and discover, along with our desire to connect, it will only be a matter of time before the industry gets back on its feet.