One of the greatest traits of the human spirit is resilience. We, by our innate nature, bounce back. And one can already see the changes. By virtue and extension of that, the travel and hospitality industry is no different.
Even at the cost of having to observe social distancing, thereby leading to abysmally low footfalls, airlines, hotels, and restaurants are opening up in the current phase of the Pandemic – with what appears to be less fear and more caution. So the way forward is to work with the Pandemic and to employ the four Ms in fighting COVID 19, namely – Monitor, Manage, Mitigate, and out-Manoeuvre.
I see everyone do their bit. Professionals are conferring across continents, getting into a mental huddle to scope out the problem, to exchange notes on what they are facing in their corner of the world, and to lay out the roadmap for the future.
Governments are ascertaining and strategizing, without doubt, and coming forth with sops to remedy and resurrect. The medical world has come out as the true heroes and warriors, already doing more than what could be expected of them. The laboratories are working fiercely to find a cure.
We are, obviously so, looking at new ways to equip ourselves with new knowledge, new SOPs, new tactical planning, and a huge attitudinal shift to regain ground in our businesses.
I came across a one-day class being offered by Forbes Travel Guide on Disaster Recovery Management. Filip Boyen, the CEO of Forbes Travel Guide, through the Seminar, offers a “unique opportunity to test business strategies for hotel reopening.” A model hotel in New York and a computer-driven simulation are employed to teach decision making for post-lockdown reopening to Senior Management. The virtual class is being taught by the irrepressible Cathy Enz, Cornell University School of Hotel Administration Professor Emeritus, and the legendary hotelier, Ali Kasikci, and aims at preparing the hoteliers for the new, hereto extraordinary business environment.
With an uncertain, unfamiliar terrain looming large and with a long, arduous and uphill trek ahead, the industry is bucking up to get into the recovery mode.
In the second part of my chat with Kenneth Vincent – Veteran Hotelier and Author, David Ourisman – Founder of Ourisman Travel and Virtuoso Luxury Travel Advisor and Jannes Soerensen – General Manager, The Beaumont, we talk about the road ahead, the challenging journey we are embarking upon and how we must equip ourselves for it.
EDITOR’S NOTE: SEE PART ONE HERE ⤵︎
L. Aruna Dhir – What should the hotel owners do to swim across and not sink?
Kenneth Vincent – Hotels have long classified expenses as variable, semi-variable, and fixed. To survive in this situation, that definition must be set aside and all expense line items must be considered variable. That includes such items as insurance premiums, mortgage payments, franchise fees, and mandated reserves for replacements. Hotels can’t survive of course with a 25% occupancy rate, but cutting those big “fixed costs” will extend the period of survivability.
Franchise companies, lenders, and many management companies require that a defined % of rooms’ revenue be placed in a “reserve for replacement” account. The intent being to assure that money is always available for complying with franchise required changes (such as upgrading bedding/TVs/ etc.), replacing FF&E to protect the lender’s collateral and to avoid losing market share as FF&E wears out. These entities can help hotels struggling in this Pandemic by suspending such requirements.
Franchise companies make money from franchise fees. They will not hesitate to pull a franchise for a single hotel when fees are in arrears. Of course with many, since most of their franchised hotels now unable to pay fees it makes sense to waive or defer fees rather than cancelling 40% or more of their franchise contracts. Likewise, lenders will foreclose on a single hotel when it defaults on the mortgage payments. However, few lenders are prepared to foreclose on a large number of hotels and their interests are better served in deferring payments, lowering interest rates, and perhaps even lending more money to defaulting properties.
David Ourisman – Hoteliers will need to accept that they will lose significant sums of money in the short-to-mid term. Their difficulty is strategizing in the midst of so many unknowns. The development of a vaccine is a necessary development before travel volumes can return to pre-COVID levels. While some economies may be necessary, drastic steps such as laying off or furloughing entire hotel staff are short-sighted. Hotels have made significant investments in attracting and training their staff, and those ladies and gentlemen are a hotel’s most important asset. They embody the culture and values of the hotel for their guests, and they cannot easily be replaced.
Jannes Soerensen – The obvious answer is to manage their short-term variable costs. The less obvious answer, that not all have heeded, is to look at long-term survival and to plan for 2 to 3 years hence, and not just the next few weeks. I am fearful of some of the short-termism I am seeing. Aruna Dhir – What will be the shape of things to come in the near future and the year(s) ahead?
Kenneth Vincent – My crystal ball, and I do have one on my desk, has been ominously quiet on this subject. However, I think it is safe to say that some hotels simply will not re-open, thus shrinking the inventory of hotel rooms. That, along with the easing of travel bans will allow occupancies to begin to inch upward. However, I don’t see a sudden rebound to former levels in the near term.
Improving occupancies will be largely dictated by three factors. One, the speed and details of lifting the travel bans; two, returning to more normal activity by companies and associations and three, the personal demand (now considerably built-up) vs the fear factor of people. The desire to travel may be tempered by the fear factor for a considerable time.
David Ourisman – I see domestic travel slowly starting to come back in the Fall with fairly healthy demand for the Festive season. If there is no second wave of COVID, travel should continue to recover throughout the Spring, but if a second wave hits, all bets are off.
The industry will not recover to 2019 levels until there is a vaccine. Luxury travelers will feel less wealthy, having suffered financial losses in their businesses and in the stock market. Though hotels will try to maintain current rates, I don’t think they will be successful in this attempt.
Jannes Soerensen – The next six months will be difficult, particularly for large city hotels, as the world slowly eases back to ‘normal’. But I have a sense that there is pent-up demand amongst the corporate travel community and I know our leisure clients are rebooking for next year. So in Q2 next year, I would expect to see a return to stronger levels.
This industry is supple. It has been through other crises and it has adapted and sprung back, and it will do so again. This does, of course, depend on how this virus evolves, how quickly we can have easy and widespread testing, and how and when the scientific community comes up with a vaccine. We are all hoping for this.