How will you weather the next economic downturn?
— 10 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?
Founder and Partner of CityHub
I would separate market-specific downturns from economic recessions. Market-specific downturns are mostly caused by demand and supply dynamics and can, to some extent, be foreseen. Economic recessions are by nature unpredictable and therefore it's impossible to anticipate their magnitude and the impact they may have. Of course, we must be prepared for the moment it happens and develop adequate strategies to be as resilient as possible.
In my opinion, a hotel's main and foremost strength is its brand. In case of a downturn, the best brands will outperform competition and are therefore more buoyant. It is important to remain true to your promise every day and stay relevant to your guests so that your reputation will keep travelers committed to your business in periods of lower demand.
Second, having a development strategy that offers a better shield in the storm. For CityHub's expansion, we target central locations in key European gateway cities. These markets have proven to be among the most resilient. Besides, when underwriting projects, it's important to study the market thoroughly and carry out a detailed cost analysis. We hold a conservative approach and make sure we have margin to absorb setbacks.
Lastly, you need to create a concept which enables a low break-even point. In CityHub quest for the best experience, all administrative and lower value-added tasks are taken care of by technology, so that our employees can focus on guests. This has resulted in a much more streamlined and efficient organization. In addition, we've broken up the value chain and outsourced the least strategic elements. By deploying these departments, we've partly made these costs variable and therefore increased our agility and robustness in case of a downturn.