We often associate Charles Darwin with the phrase “survival of the fittest”. By this term, Darwin was not using the modern meaning of “in the best physical shape” but rather “better adapted for the immediate, local environment”. In other words, the species that survived were those best able to adapt to their environment, and as environments changed, so the species adapted.
We know dinosaurs roamed the earth in the Triassic-Jurassic-Cretaceous periods – basically ruling the land – but ceased to exist after the mass extinction event some 66 million years ago. Speculated as a massive asteroid which devastated the global environment, this event lead to the extinction of three-quarters of the plant and animal species on earth, including wiping out the dinosaurs.
Well….. not really, as fossil records prove today’s birds are modern feathered dinosaurs. So, the “fittest” dinosaurs in this case were those that could survive the environmental impact and learned to thrive in the new age.
Enter Covid-19. An event so significant, it has effectively brought the world to its knees via closed borders, lockdowns and travel restrictions. On a day-to-day basis we now wear face masks, regularly use hand gels, don’t shake hands and use terms like “social distancing” and “the new normal”.
“Don’t worry, there will be a vaccine and once this arrives everything will get back to normal.” I wonder if this was something uttered by the dinosaurs 66 million years ago? How did that turn out?
What we do know is that 2020 is significantly different to 2019 and those businesses that rely on things getting back to normal to rectify the ills of 2020 may well be booking a passage on the dinosaur express – heading directly for mass extinction station.
One of the hardest hit sectors by Covid-19 has been hospitality. International tourism numbers have plummeted around the globe, large events are banned, many hotels have closed and those open are experiencing lower returns. Food and beverage establishments have had to rearrange greeting, seating, feeding and cleaning. Hospitality is described as the friendly and generous reception of guests, visitors or strangers. How do you arrange a friendly and generous reception when you are not allowed contact and even a simple smile is blocked by the obligatory face mask?
Hotels are learning to adapt and those that adapt the quickest have the best chance of survival. So what has to change? Before we answer that, let’s look at what stays the same. As Billy Ocean said “When the going gets tough, the tough get going.” Strong management, clear direction, keeping cool in a crisis, monitoring cash flow, a robust budgeting process and driving revenues are all essential in these times. Likewise, setting clear goals, leading by example and creating the right customer experience are paramount objectives for which we shouldn’t lose focus.
The processes, however, to achieve these aims have altered. As Heraclitus said, 2,500 years ago, “change is the only constant in life” – and this is still true to this day. We shouldn’t fear change as it is a normal part of our (and every entity’s) development and is required to allow us to survive. The only difference is that this time around change has come at an accelerated rate.
Consider this scenario. A hotel was trading at a satisfactory level in 2019 and the first quarter of 2020 but was then required to shut down for three months. Since reopening, its last four months’ trading results have been well below (the old) normal and, whilst achieving a modest profit, has been unable to meet existing debt and interest repayment commitments. The bank has provided a moratorium on instalments for 2020, so the hotel is managing. Furthermore, 2021 was earmarked for a major refurbishment program that would require additional cash injections from owners and financiers.
Will the hotel be able to trade successfully in 2021 ? If you were the owner or financier would you be comfortable and, if necessary, be happy to provide the additional funds? You couldn’t answer that question unless you work through the items set out below.
First things first. Providing a safe environment for your guests and staff in the current times is critical. By now, most hotels have changed their operating processes to minimise human contact and reduce transmission risk through reducing contact es (SOPs) should have been developed and staff trained accordingly. The trick here is to remember a hotel is not an infectious diseases ward and still needs to provide a service. Hopefully you are one of the hotels that dedicated hours to establishing and implementing new SOPs. Great news. But have you revisited the SOPs through observation and listening to feedback from staff and customers to ensure you are achieving your goals in the best possible way?
Revenue models have had to change to adapt for the different business and how you attract bookings to the hotel. Ensure you have revisited all distribution channels to assess how you will drive business, and that you are not relying on old methodologies.
Brands have, by necessity, loosened some brand requirements and looked to lighten their charges in these times in acknowledgement of the challenges being experienced on the front line. Ensure you have held discussions with them to alleviate whatever costs are possible. Now is a great time to challenge some of those brand standards – but prepare your case before you enter discussions.
You still need to protect and manage your cash. A term often used in the investment community is “Cash is King”. As processes adapt to the environment, new budgets and cash flows should have been built.
Critically, all assumptions need to have been reviewed and changed if necessary, and a flexible forecasting process should be in place. This is not the time to use “last year plus 5%” as your budgeting model. For example, housekeeping processes will have changed drastically – deeper cleans couldincrease times, removing superfluous room amenities could reduce times, and multi-night stays could also see less room cleans. Has the cleaning regime been reviewed and revised and reviewed again once the new processes have been implemented?
Many hotels would have been faced with the task of determining a break-even point for their business during close down. Guess what: it is time to revise it again if you have reopened and have established a new operating model.
Cost control is an ongoing process and if you have not reviewed every one of your commitments, contracts and agreements you will find yourself behind the curve. This is not justfocussed on reviewing your food & beverage suppliers, it is a robust review of EVERY SINGLE commitment, contract and agreement.
Reporting has always been an important feature for hotels and is even more so now. Some hotels have been great at providing data but not so good supplying information. Your main stakeholders (owners, banks and employees) will want to know how you are managing. The level of information will differ for each stakeholder but it is critical you continue to supply concise and meaningful information.
Most hotels are very good at reporting up to EBITDA level but not as strong managing items below that line, such as “owners expenses” including interest and loan repayments. Forecasting of loan commitments and loan covenants is critical now more than ever.
Having done all of this, the hotel will put itself in the best position to move forward.
So which are you – a triceratops or a kookaburra?
As the kookaburra would say “who’s laughing now?”
Alex Mavridis is Chief Operating Officer (EAME) of Hotel Solutions Partnership.
Hotel Solutions Partnership has developed bespoke Stakeholders Services to assist stakeholders in the current environment. Our services will be targeted to cover the concerns and issues related to any particular hotel, or group. It can cover an overall business review; reviews of existing hotel operations, such as standard operating procedures, revenue generation techniques and cost controls; assessment of forecasting, cash management and reporting; and/or liaison and discussions with operators or banks. Should you wish to have a no obligation discussion please contact us on +44 (0) 207099 7520 or email us at email@example.com