Syllabus

  • Don’t wait until you see the first signs of an economic recovery to get your hotel and its staff in shape.
  • Although economists have identified when the current downturn began, it will be awhile before you know when recovery is underway.
  • Even when there is pressure to conserve cash and cut expenses, you must focus on the eventual recovery.
  • Some will merely survive these bad times, while others will win big by changing the game.
  • If you have the right game plan, it’s possible to emerge from this downturn as the market leader in your segment.

If you wait until you see the first signs of an economic recovery to go after market share, it will be too late. As Mark Lamanno of STR put it, “Things recover very quickly, movement happens very fast.” If your hotel is allowed to slide into a state of major disrepair and your employees are not service-oriented, opportunity will pass you by as you work to make your hotel competitive again.

Unlike the airlines, hotels cannot “park” their assets in the desert for dry storage until demand returns.

While many of our brightest minds in the hotel industry still are trying to figure out what is happening, economists at the National Bureau of Economic Research declared last November that the U.S. entered a recession in December 2007. They predicted that this recession will last between 18 months and 24 months. That means the recovery could start by early 2010—but that time frame isn’t necessarily so! Hotels historically lag about six months behind the general economy going into and coming out of a recession.

What caused the hotel industry’s woes?

There is very little difference between the hotel industry and any other business segment that is dependent on a growing economy. However, hotels and groups of hotels became investments especially as their “paper” became securities. Asset managers replaced hoteliers as the driving force for hotel performance. Marketing plans and operating budgets were at the mercy of the asset management profession.

While tight credit is part of hotels’ problem, tight credit is more related to expanding the business sector than providing money for new hotel development. I’m not sure we need any more hotels in the short- to mid-term, but the industry does need capital for product improvements.

What happened?

There’s enough blame to go around about what happened, but now is not the time to dwell on that. However, the fact is that hotel developers took advantage of cheap credit, overextended themselves and overbuilt the industry. If they couldn’t build, they bought overvalued properties and often ratcheted them up a notch with expensive renovations.

The piece of the credit problem that must be solved initially is this: Banks must start lending again to businesses and consumers alike to generate consumer confidence. Hoteliers need capital for physical and other improvements, but not for expansion. We have enough hotel room supply through 2013—unless a great deal of existing supply becomes obsolete.

According to the STR/TWR/Dodge Construction Pipeline Construction Report, the number of hotel rooms in the pipeline that have been abandoned increased 75 percent in November 2008 over the previous year. The number to watch is the number of rooms that are actually under construction, not the number of rooms that are in the various stages of planning. Between now and Q2 2009, there is strong evidence that less than 20 percent of the rooms in the pipeline designated as “planned” actually will move into the “under construction” category. And that’s the best news we’ve heard for awhile.

Most of today’s hotel managers have not experienced the condition we are in today. It is going to take TRUE LEADERSHIP to keep employees involved and productive and to find new ways to meet these challenges. New leaders will emerge who will win not by merely surviving the storm but by changing the game.

Basics

Hotels that are highly leveraged will be challenged more than those with low debt service. No matter what your situation is, there are basics that must be considered. Immediately redo your business plan if you did not have a plan “B.”

Separate your goals into three phases:

  1. NOW (immediate)
  2. Mid-Term
  3. Long-Term.

Focus entirely on NOW — achievable, worthwhile goals tied to the big picture. Keep mid-term and long-term goals flexible, but do not dismiss them.

Preserve Cash

Preserving cash in hard times presents managers with an unprecedented test. Generating cash from existing operations is a real challenge. Some hotels may be tempted to squeeze suppliers. This will be difficult because companies with sophisticated supply chains rely on just-in-time delivery.

Don’t bet on your bank. Faced with problems of their own, banks have tightened their purse strings, lending less and driving up the cost of credit. Fear has gotten in the way of greed.

If you have a line of credit that was set up in better times, you may want to do as Marriott International has done and draw down on it

On Cutting Payroll

A hotel’s brand as an employer is absolutely critical. Start cutting payroll in haste and you quickly devalue your brand.

Historically, managers are given a mandate to cut payroll. This is resisted because cutting staff often results in poor service, less stringent housekeeping and maintenance standards. However, a redistribution of responsibilities among the top managers and supervisors often generates new ideas as well as savings. We must abandon the “warm body” hiring technique we’ve all seen in the service sector over the past five years. We have choices of whom to hire because of a larger applicant pool.

Seriously thinning the ranks of good employees can lead to problems down the road. Hotel owners and managers must think long and hard before pulling back on recruiting or dismissing their good workers. The hotel industry has never had a better chance to follow “Good To Great” author Jim Collins’ advice—get the right people on and the wrong people off the bus.

Invest in maintenance wisely. If funds are short for capital improvements, consider cannibalizing your guest rooms by switching the best furnishings, bedding, etc. to rooms that are in better shape and putting the less desirable rooms in a special category or in a temporary “out of order” status.

I am captivated by the endless chatter of when this recession will actually end. We just don’t know enough to make projections and predictions because we cannot back them up with facts.

Rather than just trying to survive, it is imperative that your hotel gains the top market position in your segment. That way, you won’t have to relinquish that position when the recovery is in full swing.

Drew Dimond, founder of Dimond Hotel Consulting Group, has been actively engaged in general hospitality consulting for more 20 years following a successful career in hotel ownership, management and development.

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