HOSPA Webinar - 17th June 2020

Could re-opening too early be worse than being closed?

An Asset Manager, a Revenue Manager and the profit intelligence company Hotstats discuss what to consider when deciding when and what to reopen. How do you measure success?

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ATTENDEES

• (JP) Jane Pendlebury - CEO, HOSPA

• (MH) Michael Heyward - Managing Director of Heyward Hospitality

• (MG) Michael Grove - Managing Director EMEA, of Hotstats

• (DB) David Bridge - Head of HOSPA’s Asset Management community

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Agenda

00:00 Introductions 

Jane Pendlebury introduces the panel, before opening with “The cost of reopening may be more than staying closed - what should hoteliers look to do?”

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• 1:00 - MH: This is a broad topic - but, just to highlight, we’re going to make a few assumptions about the level of knowledge you have, considering the majority of those listening will be experienced in hospitality - and if there’s terms you don’t recognise, please do say so in the comments.

• To begin then, looking at reopening, the Government is still working towards the 4th July ‘celebration’ as to when we can open our hotels.

• That date though could change at relatively short notice - we’ve seen that happen in other industries.

• It could also be different depending on where you are in the UK, with lockdown measures changing depending on test and trace measures - if regional outbreaks begin, as we’ve seen elsewhere in the world. So then, when do asset managers think you should reopen your business?

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• 3:00 - DB: You need to look at each individual property. If your target market is overseas for instance, there’s very little point in reopening. London properties will struggle. Provincial properties however are in a much better place. For them, their season is able to begin. Taking Chewton Glen as an example, it’s existing market is already 80% from the UK. Properties such as these then are well placed, while others which perhaps ordinarily don’t have such a large UK share, are set to benefit from increased domestic interest.

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• As a hotel, you need to look at what you can open. Assess the potential of each individual property. If you have a lot of local business or leisure business, then you’re likely to pick up more quickly than corporate/conference for instance. If weddings are your focus, then it would likely be next year when you’re looking at things picking up. It will need to be taken asset by asset, property by property, while allowing those on the ground, who are actually in the property, to make the decisions as to what’s most viable.

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• 7:00 - MG: Looking at facts and numbers then as to what recovery looks like, history shows us - taking TREVPAR (Total revenue per available room) versus GOPPAR (Gross operating profit per available room) that revenue took 3 years after 9/11 to recover, while it was 4 years from 2008 and the financial crisis. Return to profit, however, was longer than that. While London recovered much more quickly than the rest of the country, the provinces struggled for as long as 10 years afterwards. 

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• The focus is on getting back to profit. We can see the scale drop in GOPPAR. The current situation is totally out of scale with everything else. While looking at history isn’t totally useless, it’s not a great reference point when trying to predict the future.

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• 10:00 - DB: Why does GOPPAR recover more quickly? And what has the potential to recover more quickly? When looking at TREVPAR you should be looking at activity, occupancy etc. This gives you the opportunity to build the rate. We’ve got to drive everything to create this activity though. But, until quarantine and international business improves, you need to look at each individual asset and work out what works for you.

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• 11:00 - MG: As an industry we’ve been impacted almost more than any other. From a revenue point of view, over 2 months there’s been a drop of £2bn. From a profit point of view, that’s a £1bn drop for owners. Ancillary services have also been hugely hit. Laundry services, F&B providers, OTAs, have also lost huge revenue. While employees themselves have also lost out considerably during the period. All of which underlines why we’re so keen to kickstart the industry and get it back up and running.

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• 14:00 - MH: How then do you make the decision on when is the right time to reopen? As David says, a conventional hotel is going to struggle for some time. So what sort of occupancy am I looking to deliver before it makes good business sense to reopen?

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• 15:00 - MG: Luxury hotels, based on our data, break even on the way up - far earlier than comparable asset hotels. Luxury hotels run a much fuller operation - so there’s more meat on the bones to their service, so to speak, where they can maximise revenues. TREVPAR is an important metric for this.

• For some hotels though, 50% of revenue comes from outside of the rooms - so opening up on a room only basis, means a considerable drop in revenue. Luxury hotels, looking at our data, need around 43% occupancy to break-even.

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• 19:00 - DB: Looking at why people go makes things even more difficult for hotels. Would you go to Chewton Glen if you couldn’t go to the restaurant and the bar? These are the reasons I go - to meet with others and to socialise. Room only wouldn’t do that.

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• 19:00 - MG: Exactly. We need to be creative in what we offer to try and bridge that gap.

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• 20:00 - MH: Yes, we need to look at all elements of an offering to see what can be done. If we’re not bringing in the meetings business for instance, there may be some additional opportunities where you can appeal to corporate offices who ordinarily have small office spaces for meetings on their own premises, but would rather move into a larger space in the wake of COVID-19 for social distancing - such as hotels. So there’s an opportunity there for hotels to discuss. Can they tap into this?

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• 21:00 - DB: It can also pose further questions. How do you adjust the rate per delegate if you’re welcoming fewer numbers? Does the price go up?

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• 21:00 - MH: Knowing where the breakeven point is, is key. But you need to adjust as you go.

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• 22:00 - MH: Which parts of your business do you open?

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• 23:00 - MG: When you talk about 2 metres social distancing, you’re actually talking about 4 metres in diameter - given it would need to be all the way around a table in a circle. Revenue from a restaurant goes up considerably as social distancing measures shrink. We’ve looked at the US used global consultants to look at a macro level, and you can model what it means from a revenue point of view. While room service revenue will see a dramatically positive improvement from social distancing, in restaurants there’ll be a significant drop. A 1.75m distance in a restaurant for instance, offers 76% of your usual revenue.  4 metres distance however, offers only 7.7% of your ordinary revenue. A huge difference.

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• 27:00 - MH: Obviously it largely demands on individual circumstances. If you have a large spacious restaurant, the impact will be far less, with staggered arrivals, and more space to work with you can operate at a much higher revenue rate. 

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• How then do you manage the increased demand for rooms and take advantage? Can you increase room service operations, to encourage guests to book specific times? These stats, as they are, look purely at face value social distancing measures between tables/guests - without taking in to account the other measures that can be made to improve revenue.

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• 29:00 - MG: There will be a need for creativity. Extending breakfast times and other meals periods, offering staggered arrivals - all of these provide opportunity to enhance the basic revenue that we see here.

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• 30:00 - MG: The bar is likely to be hit even more than the restaurant without the ability to mingle freely. Do you want to focus more on your food offering then so as to maximise this and counteract the fall in bar revenue?

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• 31:00 - DB: Do we need to bring in revenue per square metre per hour as a metric? As now we have time slots - so do we look at how to maximise the time available to improve revenues? Rather than merely the space?

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• 32:00 - MG:  Absolutely. Again, creativity and an asset by asset approach needs to be considered.

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• 33:00 - MH: Looking at breakfast - is buffet changing to plated breakfast?

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• 33:00 - DB: Buffets are dead!

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• 33:00 - MH: Not necessarily. We’re seeing in Spain, that as guests return there’s still a demand for a buffet option - regardless of coronavirus fears. I’ve also been speaking to hotels in the South West, and their demographic is retirees. Those guests are feeling far more vulnerable - so you also need to understand the demographics of your target market. This also influences the measures you take.

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• The 4 metre social distancing is a zero base - what can we do then, from here, to improve the baseline revenue figure for F&B?

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• 35:00 - MG:  Looking at this week for instance, we’re seeing with retail and leisure that people are looking to get back to normal quite quickly if the queues are anything to go by.

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• We talk about, not just breaking even, but returning to profit. However, there’s an overhang on the balance sheet, with deferred payments from before the crisis - these will need to be paid too.

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• 37:00 - DB: There’s a real risk people are going to be reluctant to pay pre-paid rates and make advanced bookings, so that’s going to influence revenue too.

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• 37:00 - MG: Revenues are going to be very different. Understanding and modelling those differences make forecasting very difficult.

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• 38:00 - MG: You need to look at the cost of having a closed hotel versus the cost of having an open hotel. Going by segmentation, some segments are going to find it much easier to return than others. We’re seeing from China, in a macro sense, that corporate, leisure and bar have bounced back the quickest. (Using on screen graphic)

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• Looking at Shanghai as a micro-market though, it’s a very different curve. Leisure has got the biggest upward curve.

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• 41:00 - MH: Interestingly, conference, previously the largest occupancy market, has seen the biggest drop, whereas corporate isn’t far off pre-crisis levels and seems to have almost recovered.

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• 42:00 - DB: It will be interesting to see this from an international versus national view. Cultural differences, for instance, in China, corporate guests might be expected to go on business whereas in the UK, there’s more of a choice - so they’re less likely to go in the event of risk. In China, they might be simply told to go on business, rather than asked. So recovery in the UK would likely be very different.

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• 43:00 - MG: From a demographic point of view, we’re talking about at risk and not at risk. If you’re relying on the ‘at risk’ then you’re going to be impacted a lot further. You need to drive activity on a new service, or new operation to counteract that. Citizen M, targeting millennials for instance, are likely to fair far better than those hotels who target an older demographic

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• 44:00 - MH: What does the role of profit benchmarking play in the decision making process?

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• 45:00- MG: For me, it’s all about fact. The focus on fact is where it all comes from. The initial stages, as things start to move in the next couple of weeks, the benchmarking of online performance - seeing demand, and potential interaction ahead of reopening - and then as soon as the hotel is open, daily benchmarking or revenues is going to be vital for revenue management. The budget is pretty much out of the window - it’s zero-based budgeting for pretty much all hotels going forward. Next year, we hope, will be very different to this - but looking at your competitors and what they’re doing is also going to play a part.

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• 48:00 - JP: We’ve had a question seeking clarification on social distancing. Does the diameter include staff passing between tables?

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• 48:00 - MG: Yes, it takes that into account, with the table also included and any other furniture in between.

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• 49:00 - JP: Some businesses are considering booking out whole hotels to allow for social distancing. Is that a good idea for hoteliers?

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• 50:00 - MH: There’s a negative impact on exclusive use - coming in and going out, as revenues are restricted. Hotels need to be aware of this before they agree. We’ve seen during lockdown that some hotels have agreed exclusive use for a period of several weeks - and that’s worked well for them. But, going forward, hotels need to look at the wider impact of exclusive use on new guests coming in.

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• 50:00 - JP: Will an over-reliance on revenue management technology involve a lot of unnecessary discounting? 

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• 51:00 - MH: Revenue management systems are used to dealing with seasonal differences around the world. It’s different in the UK, with less need to shut down for the offseason but that’s not the case everywhere. Hoteliers should speak to their system supplier to discuss the modelling that’s being used, as there are existing revenue management models out there that work seasonally.

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• 52:00 - MH: Dropping price doesn’t necessarily translate to demand. You can’t manufacture demand. So there is a degree to which you need to be thinking further down the track. You also can’t control your competitors - so if you’re holding out, whilst everyone else is dropping prices it feels lonely. However, if you do need to, be braver than the people around you and maintain the price as well as you can so you make a higher margin. When the market returns to normal, never let them regain the margin that you’ve managed to maintain during that time. It offers opportunity for the future. 

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• 53:00 - DB: The important thing is to get people back to hotels and to give them confidence. Seeing the actions that hotels are taking to protect them really is key.

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• 54:00 - MH: If you can add a segment or grow a segment without compromising on price. You’re going to improve revenues as you’re getting the right type of custom through the door. 

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• You need to work with the sales guys and the finance guys to understand what we’ve been talking about today. What is the point at which we can turn things around? Even if it’s just to start losing less than we are now, what point can we start from that makes it worthwhile to reopen?

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• 56:00 - MG: From a stakeholders’ point of view, there’s little value in a closed hotel. Owners are going to want to reopen as soon as they can.

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• 57:00 - DB: Getting involved with your local market and driving interest in your hotel now is key to getting the economy back going again.

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• 58:00 - MG: Absolutely.

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• 59:00 - MH: Looking at things in detail is key. If a good revenue management tool allows you to slice and dice per segment, it can help to work out what needs to be done to get to where you need to be.

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59:00 - JP: Someone has commented to point out that buffets aren’t necessarily dead, but are being presented differently - screened and served by waiters. So it provides a change in the service, rather than a removal.