The COVID pandemic’s pummeling of hotels has caused pain across the industry. But some would argue it’s also strengthened what can often be adversarial relationships.
Exhibit A: The major hotel brands, suffering their own losses, have remained committed to providing cost-saving relief and revenue-generating support to owners. Their efforts have been welcome, but some would like to see more permanent changes to certain business practices.
“The brands are doing just about everything they can to help, outside of giving us money,” said Jon Bortz, CEO of Bethesda, Maryland-based Pebblebrook Hotel Trust and current American Hotel & Lodging Association chair. Measures have included reductions in fees, relaxing brand standards and PIP deadlines, allowing FF&E reserves to be used for other purposes, and altering rules for staffing levels and furloughs. Brands have also negotiated reductions or deferrals on key vendor contracts for shuttered hotels.
Foregoing the daily housekeeping standard and allowing the closure of food and beverage outlets — especially in communities with restrictions and capacity limits — have been the among the most welcome concessions.
The crisis also seems to have encouraged a stronger brand-owner dialog. “Brands have taken a very proactive approach to working with owners and managers, not only keeping them apprised of what they’re doing, but also recognizing there are a lot of best practices they can learn by engaging with owners. They’re listening differently now than they were previously,” said Michael Doyle, managing director and executive vice president with asset manager CHM Warnick in New York.
Driving business
Brands have also helped drive revenue to hotels by focusing on customer segments likely to still be staying in hotels: leisure guests and beyond. “In a collaborative effort with our management teams, many brands are targeting different types of base business that they wouldn’t normally go after to generate revenue,” said Michelle Russo, CEO of Providence, Rhode Island-based asset manager HotelAVE.
Work from hotel promotions that offer day-use rooms or incentives for longer stays have been a popular solution, and Bortz said brands helped some Pebblebrook hotels providing housing for college students as a socially distanced alternative to dorms.
Some pricing strategies are seen as a potential boon. “Brands have embraced dynamic pricing initiatives that will be crucial in returning ADRs to pre-pandemic levels quicker than during the last downturn,” said Elie Khoury, executive vice president of operations for Aimbridge Hospitality, based in Arlington, Virginia.
Sage Hospitality President and Chief Operating Officer Daniel del Olmo acknowledged that the support by brands in targeting leisure travelers and remote working, but said that Denver, Colorado-based Sage decided to piggyback on that with several promotions geared toward leisure travelers and small groups. Bounce-back offers, flash sales, school-cation packages, hybrid meetings, micro wedding packages and other ideas have yielded results.
Whether any of the efforts to keep hotels afloat will solidify into permanent standards is anyone’s guess. Some asset managers and owners would like to see shared services shrink, particularly when it comes to functions like sales.
At larger hotels, Doyle said, “We would like to have people on the property focusing on our property. In the path to recovery, it’s better to have people dedicated to your assets.”
Property-level brand staffing standards could stand to be rethought as well, Doyle added. “We don’t want someone who is responsible for rooms and one for food and beverage — we’d like to combine the two. We would like to have more supervisors than managers.” Technology is also expected to replace some functions, especially as germ-wary travelers embrace automation.
New F&B solutions
Food and beverage standards, under the microscope even before the pandemic hit, are likely to attract more scrutiny once the worst is past. “We can expect simpler F&B solutions in full-service hotels moving forward,” Russo predicted. “The reality is that it is a necessity, but not a differentiator outside of the luxury space.” She said the shift to simpler menus or grab-and-go outlets might cause some brand blur, but owners are apt to be less accepting of F&B losses in a challenging era.
“We would like to see our brand partners remain flexible as we navigate through the recovery,” Khoury said. Because hotels in different segments and markets will recover at different paces, he argued, some will require more or less assistance than others. And he expects the brands understand that a cookie-cutter approach won’t be sufficient.
Asset managers are likely to face pressure from owners to keep a lid on costs as well. “They will expect operational efficiencies to continue to translate in improved margins on a go-forward basis,” del Olmo observed. “Our mantra of ‘thinking like an owner, yet acting as a partner’ will be more important than ever before.”
Finally, those delayed PIPs and capital investments might look good today, but many owners will face a day of reckoning, Bortz noted. “Unfortunately, as soon as you don’t maintain a hotel, customers go elsewhere. You get into a vicious cycle where you don’t have the cash flow to invest, and no one will lend to you because you already have debt, and then you can’t get out of that hole.”