The Bittersweet Next Normal for the Hotel Industry
By Larry Mogelonsky, Managing Director Hotel Mogel Consulting Limited
By now, we're all well aware of the dire state of COVID-related affairs still facing many tourism and hospitality operators around the world. Specifically for hotels, some of experienced victories by feeding the summer staycation crowds while others have yet to open or are operating on barebones staff. We all yearn for the pre-pandemic golden years of travel, but through what is termed as the 'next normal' in lieu of the more binary 'new normal', it will take several consecutive cycles of turbulence for us to regain some semblance of normalcy.
The first post-pandemic next normal we are currently in has brought about some calamitous prognostications for the hotel industry for the next year ahead highlighting just how stormy the waters will get. As an example, in early July 2020, Chip Rogers, president and CEO of AHLA said that as many of 8,000 hotels might close without the proper support from the US government.
Should we be concerned? Is this the beginning of the end of our industry? Or, is this simply more akin to a herd of buffalo struggling through a rough winter and culling the old, weak or infirm?
Let's do a bit of math to dissect the impact of a loss of that many hotels on the US economy. According to a quick Google inquiry, the country currently has around 54,000 properties in total, so removing 8,000 from this body represents a decrease of roughly 15% of the total available rooms. With 60% of US hotels either flagged or branded (according to a research editorial by Hotel News Now from April 2019), this can also lead to a tremendous revenue loss for the major chains.
I say that this is bittersweet as per the title because the remaining 85% stand to benefit at the expense of those who end up crushed by the pandemic. If these closures are evenly distributed, macro-market RevPAR figures will grow due to the fewer guestrooms to divide by, thus implying an industry recovery and perhaps even allowing some hotels to experience increased occupancy and ADR as a direct result of the reduced supply.
Demand, though, is a whole other story as it is heavily influenced not only by one's ability to visit a destination unencumbered by viral safety measures but also gross confidence in the stock market.
While an 85% survival rate may be somewhat bearable in the short run for the total economy that incorporates all other sectors, this says nothing about the number of people - frontline staffers and managers - who will be put out of work permanently by all these closures. Then add to this all the employees still furloughed or on a part-time salary due to lowered travel volume and new technology implementations which render certain duties redundant. With travel and tourism encompassing every tenth job, this is a huge number of people left struggling and not spending.
In a consumerist world, the stock market is ultimately buoyed by people consuming, so any large-scale contraction in the workforce still inevitably trickle up as a market correction. This in turn could lead to a stagnation in both local demand and the total number of travelers from all segments as everyone looks to cut expenses due to the fears of another global recession.
What does this mean to you (primarily as an owner, general manager or regional director)? Thinking glass half full, this chain of effects should lead to opportunities to add revitalized hotel products into the market, taking advantage of our current technological innovations to simultaneously improve margins. An infusion of better products will lead to higher levels of guest loyalty and an improved industry over the next five years.
Regardless of whether you are in the 85% or the 15%, now is the time to focus on the future of your property. Just because you may think you are in the latter camp is no reason to throw in the towel just yet. Rather than fall into a rut of strictly minimizing costs, cutting both staff and expenses, or looking at how to liquidate all remaining assets, use this period to plan a reset that is cognizant of all the global market forces at play.
Who can your property appeal to? Are there opportunities to relaunch your product with a different USP? To discern the answers to these questions, start by taking full advantage of your CRM to reap business from the low hanging fruit - targeting past customers with personalized loyalty incentives. Use electronic marketing techniques to fine tune how you motivate the guests that are out there, and then develop a plan to funnel them from the OTAs and meta-search into direct bookings.
While I trust that you have already done your due diligence in updating your property or brand to include the perquisite contactless and physical distancing measures, the next normal will be about discovering the new niche for your hotel, all the while remembering that any victory may be part of a grander zero-sum game. Proceed cautiously as we've yet to see what the hospitality landscape will truly look like once restrictions are fully lifted and the scare of foreclosures has passed.