Industry Update
Opinion Article26 August 2020

What A Difference A Year Makes

Consider this advice on how to prepare and develop a business plan for the COVID-19 recovery year.

By Bob Rauch, President of RAR Hospitality

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When I wrote an article on business plan development for 2020 suggesting flat occupancy and rate, I stated, "Naturally, the caveat is that unexpected 'event' that could stimulate a precipitous decline in demand." If I had known about the pandemic one year ago, I could have saved lives, but I did not. I just knew that we have to be prepared. I think we have done an excellent job responding to business conditions on the ground, but what do we do for 2021?

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The first thing needed is a review of macroeconomic data, which currently indicates a combination of a major global slowdown and recession. Unemployment is now quite high, consumer confidence is weak and the short-term economic conditions are awful. STR, parent company of Hotel News Now, is forecasting a decline in revenue per available room of about 30% in 2021 and most pundits are in that range, some worse.

Business travel is starting to come back, but slowly. Airlines are reporting low load factors and there are few segments in hospitality that are doing well. Quarantine restrictions are killing business travel, and when it begins to return after Labor Day, it will take at least the better part of 2021 before it approaches 2019 levels. Advances in therapeutics will help as well as a vaccine.

Leisure travel demand bottomed out in April as we approached 20% occupancy levels with the help of first responders, doctors, nurses, hospital staff and the few government-related projects that remained. Add in a few home-replacement guests and voila, 20% occupancy at low rates!

As COVID-19 cases continue to spike across some areas in the country, consumer confidence appears to have declined, especially when it comes to travel. MMGY reports that likelihood to travel for business has dropped 7 points over the last month, but leisure travel intent has remained steady at 40%. This indicates a resilient traveler segment that will be open to messaging and marketing.

With hotels reopening and cash burn rate way ahead of where we'd like to see it, we must prepare for deeper cuts in cost to survive a difficult recovery. Some of the groundwork has been accomplished with examples like grab-and-go food, more technology, eliminating stayover housekeeping service and bottled water in rooms as well as outsourcing everything from marketing to sales to human resources and accounting. We have already eliminated the controller position and put more responsibility on the GM to be aware of all things financial with the help of a third-party accounting firm. Additionally, we have outsourced our digital marketing.

Targeted digital messages and social media marketing can reach the drive-to market. At one of our properties we started packaging breakfast and dinner to both increase the value proposition and to get some food-and-beverage revenue to offset costs.

In Miami, apartment complexes are providing live concerts for residents. Granted, the building needs to be set up overlooking the pool or a central hotel area, but it can also be effective as guests have not heard live music for a while!

According to Cleveland Research, occupancy to date appears supplemented by contract business on the books including healthcare/first responder, government and displaced persons and some logistics/construction business. Their research continues to highlight outperformance in secondary/drive-to markets and extended stay while lower chain scale/select-service type properties continue to support the current month-to-month improvement in the trajectory of RevPAR.

At the end of the day, while much more difficult to forecast, the business planning must begin. It is a request for proposal season (RFP) and we must target our markets, determine where we can cut costs and figure out how to stay in business another year before things settle down and return to normal, whatever that ends up being. To 2021!

Bob Rauch

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