The International Luxury Hotel Association spoke with Romy Bhojwani during the COVID-19 crisis to understand how the hotel industry is being affected and what strategies he is putting in place for the future.
He told us that business is being impacted across the board and 8 in 10 hotel rooms are empty. Roughly 15% of the hotels are shut down in the United States, while the others have significantly scaled back their operations to respond to this extreme low levels of demand. . The Midscale without F&B and Extended Stay segments have been impacted lesser than the other chain scales segments. The luxury sector has been impacted the most, and owners and operators have no real clarity on how long the situation will continue. In many cases, it just does not make sense to stay open given the large delta between carry costs during shutdown vs. operating costs when open.
Owners and operators agree that the risk is too great of having a contamination incident on property, and they do not want the public perception that they are not following executive orders to stay at home and social distance.
A hotel in Boston was hosting a biotech conference in late February, where some of the attendees who had been working in COVID-19 affected areas in China caused multiple infections including among staff and the virus infiltrated the HVAC system, causing the CDC to take over the site for clean-up purposes.
“If something like that had to happen the consequences are very severe from a reputation standpoint,” said Romy. , “In certain cases, like large group hotels or hotels with heavy food and beverage operations, it is clear that a temporary shutdown is the only logical option.”
A reopening timeline for these hotels can be determined only once there is clarity on the lifting of state and city executive orders, and there is data pointing to people beginning to travel again.
Recovery is dependent on the overall economy reopening, and consumer confidence around airlines and hotels implementing necessary protocols for safety and hygiene. Currently no one is traveling for business, a big driver for weekday occupancy, and there is very little leisure and no travel groups. Only once there is some clarity around the increased testing, number of new cases decreasing and executive orders being lifted, will we start to see some uptick, first with business travelers as they get back to projects, followed by regional leisure travel. A key factor of leisure and F&B demand will be the overall trend on employment figures.
What does this mean for group business?
Business is still getting done, small groups are working from home, conducting zoom and skype calls; large groups like conventions and conferences are mostly canceled through the end of the year. Group business will be the last segment to come back, and these larger hotels will have to fundamentally change their operating model on the other side of this crisis.
The second quarter of this year will be a washout, and we are starting to see cancellations for the third quarter and fourth quarter; if the data points to an upward trend in June we would expect to reopen in July, to take advantage of summer leisure travel. Recovery will be uneven based on location and type of hotel. Business transient hotels will come back first, drive to leisure hotels will be next. Convention hotels will take longer. As it relates to markets, on the West coast, most of the summer business will be transient driven Florida markets may take a little longer as those are generally lower occupancy months. Urban markets like New York, Boston, Washington DC will be impacted by lack of group business, but will likely see a strong rebound of business travel.
Meanwhile, some hotels are shoring up occupancy by working with healthcare, government segments
FEMA, the CDC, traveling nurse and doctor groups, the National Guard and other government agencies. We have steered clear of converting hotels to hospitals, as it is a much more complex operation with significant liability and insurance ramifications.
Government stimulus and the CAREs ACT
The CARES Act has been very helpful with SBA loans that different businesses can take advantage of. The Paycheck Protection Program (PPP) will advance a business funds so that they can keep their staff on payroll and bring them back by June 30. As long as you spend the PPP funds on payroll, mortgage, rent and utilities, the loan amount spent over the first 8 weeks will be forgiven. If you think you are going to bring back all your employees by the end of June, it is a very good option to create liquidity in the operation via a partially forgivable loan. But even if you only bring back part of your workforce, it is still attractive as the interest is only 1%. It provides short-term cashflow relief at a low cost, to tide businesses over the next 60-90 days.
We decided to mostly furlough employees vs. terminating them. so that they are still active employees but can also file for unemployment benefits. To encourage engagement, we do a virtual townhall with a GM state of the union update that tells them what is going on at the hotel and put out a positive message so that they feel connected to the property and will rejoin the hotel once the crisis is over. The cost of retraining a new staff member is so much higher than getting an original employee back so it really is important to keep them actively engaged with the hotel. The response has been great. Employees don’t have access to their emails, but they can use their personal emails to stay connected to the hotel via group chats, online townhalls etc.
The big question going forward is what does the future hold. This truly is an unprecedented event in our industry, and how we recover from this is going to be different compared to previous cycles. My view is that a crisis like this will fundamentally change how we operate for the foreseeable future. The operating model within hotels will have to shift to respond to new and different customer needs. For example: buffets will be minimized or eliminated, community workspaces and F&B options will have to be rethought, large group gatherings will essentially cease to exist until there is a vaccine, In-Room Dining will have to be retooled via higher standards of hygiene. The customer is going to be looking for operating practices that create confidence regarding safety and hygiene. Therefore, this is a good time to be planning, getting organized, putting new operating procedures in place, and picking a date to open that is flexible, with a timeline you can shift as needed based on data trends and leading indicators.
As an industry, we have not been through this level and pace of demand decline before, so we cannot fully compare this to at previous cycles. Even after 9/11, hotels were not shut down for an extended time, and in 2008 we never got to this extreme low level of occupancy so quickly. We must use this time to reimagine, rethink and remodel our operations, to not only respond to a different set of consumer needs, but also do it in a manner that is efficient and profitable, in a new “normal” post COVID-19.