U.S. hotels reeling from the widespread effects of coronavirus are looking at a long, five-year slog to restore occupancies, revenues and profitability, based on a comparison with past crises and prevailing conditions done by HotelAVE.
Why so long? Compounding the effects of travel restrictions and overall anxiety, U.S. hotels had already seen growth start to slide before reports of the first U.S. coronavirus cases.
“The industry’s pre-COVID-19 challenges of above-average new supply and the impact of shadow supply — Airbnb and others — are new obstacles the industry did not face in prior downturns,” says Michelle Russo, CEO of the asset management company.
HotelAVE’s five-year prediction is based on the COVID-19 crisis in the U.S. lasting less than four months — a time frame consistent with other disease outbreaks, such as zika and SARS. The clock started running in early March. (Read the full study here.)
Surviving in the near term will demand some strategic thinking. “The pandemic requires that all hotels in the U.S. implement urgent and aggressive cost-containment initiatives,” Russo observed. That includes temporarily deviating from brand standards.
Among her recommendations for hotels staying open during the crisis: Close restaurants and bars, eliminate stayover housekeeping, close club lounges, pools and fitness centers, shut down entire floors, cancel ongoing maintenance contracts or reduce their frequency, eliminate items like in-room coffee and bottled water, and furlough bell staff and concierges.
“You’re trying to shrink it down to the most essential of operations,” she advised.
Whether they stay open or not, Russo says operators also need to lay the groundwork for recovery. Among steps to consider now:
Marketing: With no one traveling, there is no point spending on travel marketing. But once the crisis begins to subside, focus on segments that will remain on the road or are likely to come back first — government, health care, legal and logistics. At that point, leisure travelers who venture away from home are likely to favor markets that can be reached by car, so a focus on staycation business makes sense.
And Russo says this is an opportune time to step back and use data to determine what has been driving demand and strategically target efforts going forward. “Get those leisure packages ready now to push out,” she said, and avoid the temptation of aggressive discounting, which will undercut corporate and group rates and hinder recovery.
Operations: Russo expects a new normal will surface after coronavirus is licked. “If it were a faster recovery, you would just reopen and carry on with previous business practices. But we believe there will be some behavioral shifts by consumers,” she said. It’s a good time to step back and do some soul searching: Do you need three F&B outlets? Are you overstaffed? What services really matter to your guests?
Hygiene will undoubtedly appear at the top of many travelers’ biggest concerns. Doubling down on a comprehensive cleaning and sanitation program is essential, Russo says, so much so that she thinks it will be a crucial way to differentiate hotels from homestays. “Cleanliness and sanitation will become part of a hotel’s marketing repertoire,” she predicted.
Finance: Prioritizing expenses and working to stretch out payables as long as possible are pressing short-term needs. Furloughed employees expect to be paid for unused vacation time, an additional expense that must be taken into account. Some hotel owners are juggling funds, negotiating with lenders and brands to tap FF&E reserves for other purposes. Russo says the major hotel companies “have been amazing” about relaxing rules and helping owners determine whether it makes sense to stay in business during the crisis.