How will you weather the next economic downturn?
— 12 C-Suite executives shared their view
Although an economic recession and hotel industry downturn are far from certain, economic indicators, investor and corporate sentiment, as well as the recent operating performance of hotels in various sectors, point to an impending slowdown.
The current cycle, according to data intelligence firm STR, has continued virtually unabated since March 2010 with year-on-year RevPAR increases occurring in 112 of these 115 months. However, September 2019 was the second month this year when RevPAR results turned negative in the US, as increased supply outpaced demand. Similarly, PWC reports deceleration in the USA, with, for example, Q3 RevPAR growth at less 1%, the lowest figure since the industry began to recover from the 2008 economic crisis.
Some investment analysts suggest that hotel companies may not be adequately prepared for the eventual downturn. Investors and the hotel owners who increasingly rely on firms to operate their hotels may be right to be concerned about what such companies learned from the banking crisis of 2008.
The question, therefore, is how have the strategies of hotel companies changed or evolved over the past decade to help firms survive or even prosper during the next downcycle that may soon be upon us?
Chief Executive Officer of the Kempinski Group
The hospitality industry is by nature a fluctuating business and is very much dependent on internal and external elements that can either positively or negatively impact its top line. There is, therefore, no magic formula to go through an economic downturn. My first advice would be that we should not talk ourselves into a recession or a crisis. It is important that we have a positive view of the market and its development. Interest rates will stay low and will provide the basis for a stable business environment. Of course, some markets are already in an overbuilt situation and it will take some time that the demand is able to catch up with the supply. What we can do though is getting prepared as much as possible to mitigate the damages, protect the GOP and market share as well as safeguarding the brand value. Particular in those markets that are already under the pressure, such as Dubai.
Cost-efficiency is a good approach ahead of the next economic downturn. By cost-efficiency, I don't mean blindly cutting costs but have a critical look at spending. Every cent spent shall bring ROI and increase the overall operational and financial performance.
But cost-efficiency can only be successful if combined with a long-term value growth plan to ensure the sound foundation of the strategy. Invest massively in sales to expand the sales presence around the globe and shift focus on emerging markets. You can still drive business from these markets while traditional markets may eventually get hit by the economic slowdown.
In terms of pricing, dropping rates is not a solution and here again, a long-term view to growth prevails with a robust rate integrity strategy in place. It allows to respond and adapt the pricing strategy to the demand while remaining the leader on your market with fixing the rates, not becoming a follower.
Make quality investments in the product. We operate in the luxury segment and delivering an average product is not an option, even less during an economic downturn when the competition is fiercer and guests get more demanding.
We are in a people business and what set us apart from the competition is the human factor. Look after your guests and enhance your loyalty programme to reward your members and drive repeated business in your hotel. Invest massively in your people with training and talent development and education to maintain the highest level of service and ensure that employees deliver, what we call at Kempinski, Beautiful Performance to the guests. When having a choice between two similar products, the quality of service is a key differentiating factor. This will enable to cut a bigger slide out of the maybe smaller cakes.
And in the end, this is what everybody should strive for.