As mid-quarter reports start to shed a light on the prognosis of the world economy for Q1 2020, the fasten-your-seatbelt-sign has come on for the hospitality industry. As recent reports from STR show, the slowdown in global travel will have a significant impact on budgets in 2020, possibly ending the longest growth cycle for the industry, as it is felt already by airlines. While it is sure that the situation poses a formidable threat to the travel industry (and the custom of handshakes), it is still up in the air whether this will lead to a temporary setback or to a long-term slowdown. Regardless of how the situation evolves, it is likely that traveller confidence will take time to recuperate. We have seen miraculous recoveries in case of singular destinations (think Turkey after the terrorist attacks), COVID-19’s case is particular in that it is shaping up to be a global issue, with global consequences.
While it is crucial to brace ourselves, the industry will have to think outside the doom and gloom measures and pair cutbacks with proactive measures to use this period of slowdown. As hotel asset managers and hospitality advisors we see an opportunity among the threats. While emergency cutbacks in operations are necessary to cope with falling demand, we identify a few areas that might be implemented during this period.
The current growth cycle benefited developers and investors with tempting, ever-growing KPIs. In a growing market, it is easy to lose the proactive mentality. This nonchalance lead, in some cases, to inefficient operations either on a hotel- or on a departmental level. Combining the cutbacks with internal reorganisation could ensure that the emergency measures represent a thought-through strategic decision instead of a hasty one that has no long-term benefits. Think of how cutting back vines at the right time helps the next harvest.
Evaluating the real estate lifecycle and required CAPEX for your property at this time could also help hotel owners come out ahead after the slowdown. As KPIs and most importantly occupancy drops, owners have a possibility to benefit from this, hopefully temporary, vacancy. For hotels and outlets in need for renovation or reconceptualisation in the next few years, the opportunity presents itself to bring these actions forward. Whoever wants to capitalise on this, will have to move quickly, taking on professional project management help.
In more drastic cases, this time could present an opportunity to re-negotiate long-term contracts. One of the most important ethical consideration in these circumstances is that businesses should not take advantage of their partners and customers. The hospitality community will have to note that we are in this situation together and instead of seeking short-term benefits. Breaking off agreements pointing to a force majeure case, could bring temporary relief, however, would also undermine trust. We advise seeking a win-win situation when entering into contract re-negotiations, preferably with the involvement of professionals.
What is our recommendation? Of course, all projects and circumstances are different, however, taking on a proactive strategy, hotels and hotel owners have something to gain in the temporary chaos. As always, working with professional advisors and project manager can make the difference between a prolonged struggle and a quick and coordinated response to market threats and opportunities.