Industry Update
Opinion Article 8 May 2020

Time for the Hotel Industry to “Remove the Box”

By Hanley Chew, Creator of first ever Hotel Tales series in Asia

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Chew

The hotel industry is one of the worst-hit industries during this crisis. A lot of studies have been conducted to help us understand the impact on the economy and our organization's bottom-line. Industry experts, through their various associations, have predicted that the average hotel occupancy in Malaysia for the year will stand at around 25% or less. This is such a shame, knowing that 2020 was supposed to be Visit Malaysia Year, and Tourism Malaysia would have spent millions of ringgits through its promotional channels to bring holiday seekers to Malaysia.

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According to a recent study by Malaysia Association of Hotels (MAH), the industry is looking at a potential loss of RM6.3b in rooms revenue alone. Assuming rooms revenue accounts for 60% of the total hotel revenue, with F&B and other income accounting for the remaining 40%, the industry is facing a RM10.5b in potential losses. MAH represents about 1,000 hotels out of the 4,880 hotels registered with the Ministry of Tourism Arts & Culture (MOTAC). However, these 1,000 hotels with 164,000 rooms represent 56% of total rooms inventory available throughout Malaysia.

Much has been said about this unprecedented period. The number of hotels closing for business is increasing by the day, indicating not only loss of business, but also loss of jobs. The current estimate is that 1 million travel industry personnel (including hotel, airline, cruise and travel agents) will lose their jobs by the end of this year.

Senior leaders in the government have also rightfully indicated in various webinars that financial assistance will first be given to critical industries that can help restart and revive the economy. Unfortunately, the hospitality industry is not one that will be on top of this list.

While we take stock and moan how the hotel industry's poor prospects, let us focus our attention on what we can, and should, do moving forward.

  1. Undoubtedly, China will be the first country to return to normalcy. According to a study by the University of Singapore Technology and Design, China is expected to be the first to get back to normalcy while Malaysia's magic date is predicted to be July 6. Whether we like it or not, we should look at China as one of our main feeder markets, besides the domestic market of course. Consider appointing representatives or affiliates based in key cities in China to work with online platforms and mainstream travel agents there and start re-promoting Malaysia as a destination. Hoteliers need to actively prepare for this, and as soon as China reopens its doors, hotels must already be "Chinese friendly" at all service touch points. In neighbouring countries, there are even dedicated lanes at the immigration counters for the Chinese and some hotels feature special helpdesks manned by Chinese-speaking staff.
  2. Just like hotels, I am sure the airline players are also strategizing how to get their planes up in the air again. Now is a great time to engage airline partners to form a strategic alliance. Key resort destinations like Langkawi, Kota Kinabalu and Penang should study if it is feasible to do charter flights from selected destinations. This may seem like a big exercise that probably cannot be done by a single hotel. However, if a group of hotels get together and underwrite, say, 20 seats per flight per hotel, only a group 7-10 hotels will be needed to form a consortium to charter a A320 or a B737.
  3. A financial reprojection is necessary to understand your hotel's new breakeven point. We often hear that the breakeven point (BEP) in an operating hotel is at 40% occupancy levels. In my opinion, I think this very much varies from hotel to hotel as the configuration and set-up of each hotel is different from others. Whatever the case may be, every hotel has to determine its new BEP before embarking on any strategic journey. Hotel restaurants, for instance, need to be reconfigured to observe Social Distancing. A restaurant with a capacity of 100 persons may now cater to only 40 persons. This will obviously change the costings and manning of these outlets. Kitchens might have to be redesigned to cater for takeaways. Dine-in areas may now be smaller and hotels will also begin to provide food delivery services.
  4. What's the new normal for hotels?
  • At least for the short to mid-term, hotels will be looking at domestic travellers as a main source of customers. This will indeed be the fastest strategy to regain some occupancy. Malaysians still love the "Cuti-Cuti Malaysia" short getaways. This is a good initiative by Tourism Malaysia. It is still relevant and since it is not broken, let's not try to fix it. Continue promoting domestic tourism with this tagline.
  • There may be more direct bookings via own Internet Booking Engine (IBE) rather than third party portals, as customers have now experienced the difficulty of getting refunds during such crisis. Many third-party platforms are charging some sort of cancellation fee for cancellations even during such times, citing their fine print Terms & Conditions which no one reads. Direct bookings allow the customer to reach the decision maker of the company directly, and they tend to be more sympathetic towards situations like these regardless what their fine print Terms & Conditions may say.
  • Small boutique hotels may be more popular than the mega ones as people want to stay away from crowds. This crisis has reshaped us to become less sociable. I used to think the popular "Anti-Social Social Club" T-shirts were the creation of some kid trying to be funny. Now I see these T-shirts quite differently as they clearly define who we are today.
  • Hotels may in the near future need to be certified "Social Distance Compliant" by authorities after they have practised and passed SOPs set by authorities. This is going to be very similar to the HALAL certification we see displayed on public areas. This could be something we will all be used to in the near future.
  • There will be more demand to use in-house facilities like restaurants and spas, as it will be perceived more hygienic and safer. This is good news for hotels as the SPOR (Spend Per Occupied Room) index will increase. After all, hotel guests are captured audiences and if the price and quality are right, there will be no reason for guests to look outside the hotel complex.
  • Terms and Conditions for bookings will be more flexible and will allow for cancellations. Guests will now pay more attention to the Terms & Conditions after experiencing how difficult it is to get refunds, especially from third party platforms.
  • Remote destinations will be preferred rather than city hotels, as crowd avoidance will be the theme of the day. This is a great opportunity for resorts located at small islands or isolated areas. Remember to always promote first the destination, then the resort.

It is indeed depressing to read in the news every day about hotels closing for business one after another. While it is understandable for hotel owners to make such drastic decisions due to financial constraints, I believe all hope is not lost if a complete reset of the hotel is done to align with the new dynamics of the industry. I hope and pray that after this difficult period is over, hoteliers will come out stronger. My hope is not that hoteliers will think outside the box, but that they will remove the box instead.

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Hanley Chew

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