Hotel owners and operators continue to reassess their business models as the industry continues to reel from COVID-19.
During a webinar titled “Emerging strong: Shaping the future of travel and hospitality” presented by Dixon Hughes Goodman, executives discussed their outlook on corporate travel demand, their pivots in development strategy and their theories for how the hotel industry could evolve post-pandemic.
What happens when leisure runs out?
The small resurgence in leisure travel has been encouraging as drive-to markets see upticks in demand, panelists said. But there is plenty of uncertainty about corporate group demand once the summer ends.
Chris Ropko, CFO at McNeill Hotel Company, said the pent-up leisure demand has led to some stable occupancy at his company’s hotels nationwide, but it’s difficult to project what the rest of 2020 will look like.
“The big question and unfortunately still the very big unknown is what happens when that leisure demand starts to pull back, school goes back in session—whatever form it’s going to take, whether it’s virtual or in person—I think a lot of that is still up in the air,” he said. “Where is the demand going to come from? And I think, at least from the McNeill perspective, we don’t have a whole lot of clarity, to be just brutally honest, or with respect to corporate demand and how that’s going to come back or if it’s going to come back in the year 2020.”
Michelle Russo, founder and CEO of HotelAVE, said it’s hard to rely on historical data or past recessions to navigate the decisions needed today. She added that future group business is one big question mark going forward.
“Group historically is always the last to come back, and there are still more net cancellations than there are rebookings in the future at this point,” she said.
The push toward remote working could drastically cut short-term stays for corporate travel, Russo said.
“This type of technology is going to impair the one-day length of stay for corporate, but does that mean that corporate will then still need to travel face to face and stay for two or three nights once a quarter instead of three short trips? We don’t know,” she said. “… We are all hearing anecdotally that some companies are looking at office space outside of urban markets and looking at relocating. Those are pretty severe positionings for a company if the expectation is that a (vaccine) is going to come in and fix things next year; there’s massive fundamental shifts that it’s so hard to forecast the outlook right now.
“Even if you tried to assess it on past history, past history is not going to be an indicator of how these companies are going to come back. And let’s be clear, they are in cost-containment mode, too. And travel is one of those items that they restrict to manage their costs.”
In the meantime, re-evaluating operations costs is a daily task. Russo said that means coming up with new food-and-beverage options to replace lost banquet and full restaurant revenue.
“It’s really hard to justify bringing back the whole kitchen,” she said. “That tends to be a pretty heavily fixed cost; it’s hard to flex the kitchen until there’s really great bandwidth demand that can sustainably support it. … We’re seeing enhanced grab-and-go, maybe simpler menus to help kind of mitigate that loss impact.”
When asked about hotel development, panelists agreed that their companies have continued construction on schedule for projects that were underway before COVID-19 gained momentum, but there’s little traditional financing available for new projects.
“The projects under construction we’ve continued, and in those projects, we’ve had minimal if any disruption on construction given COVID,” said Greg Friedman, managing principal and CEO of Peachtree Hotel Group. “Everything’s going smoothly. Ideally, I’d like those projects open up a year from now and not to be opening up over the next six or nine months.”
McNeill still has one hotel project under construction—a Courtyard by Marriott near Kansas State University in Manhattan, Kansas—and one additional project in the planning phase, Ropko said.
“If you’ve got a deal under construction, it’s not a bad time to continue construction; you’re probably going to see a little bit of savings in your construction costs,” he said. “As long as you’re not opening right now, and you’ve got a little bit of runway … when it opens, I think all those deals are going to end up being fine when it’s all said and done. It’s just getting to the finish line.”
Ropko added despite the pandemic uncertainty and how that will affect college campuses, he’s still optimistic about the KSU Courtyard property.
“We’re right next to Kansas State University, so regardless of what the macro environment is, and I know there’s still a lot up in the air with universities … but there will be demand for that product when it opens in that micro location, no doubt about it,” he said.
Changes to the hotel stay
As the industry reduces high-touch amenities and services, Russo said those restrictions are likely to target traditional hotel staples like the front desk.
“Consumers don’t really want to have social interactions on routine kind of events—gas pumping, money machine—and we are heading that way for the front desk,” Russo said. “It’s not a value-add social experience, and statistically, consumers value their hotels stay higher when they have less guest-employee interactions. … We are going in this direction where we have to totally rethink the model, and my view is are front desks still going to be necessary, and how do you repurpose the associate to be value-add to the to the consumer? Because technology is going to functionalize those routine events.”
Friedman agreed, pointing to how airlines have continued to minimize points of contact throughout the travel journey.
“Think about it the airline industry: How often do you ever go to the ticket counter today? You never really do unless there’s some major issue with your ticket or something,” he said.
He advocated for higher tech adoption within the hotel industry to continue to decrease costs.
“I think that’s going to be something that is going to change through this (pandemic) where people are going to get comfortable using their phones,” Friedman said. “Most people are always looking for the more efficient ways and more effective ways to travel, and that’s something that’s been underutilized. … For us as hotel owners and operators, it’s great if that technology is adopted, because hopefully we can start to (shrink) the operating costs and we can take away some of that labor expense.”
On the subject of labor costs, Russo said operators across the industry are beginning to consider whether it is feasible to extend furlough for employees or move toward severance packages.
“We have a lot of associates on furlough now, and all of our hotels have been paying the health care costs of those furloughed employees,” Russo said. “We are in a health crisis, but there are numerous operators that are proposing as we hit the six-month mark that it’s time to evaluate severance, which normally would make sense because it would suggest that operations are not long-term sustainable.
“But given where we’re at, we feel like we’re going to need those associates coming into next year for sure, and hopefully progressively. Those are challenging discussions because you don’t want to lose great people.”
Read the full article by Dan Kubacki HERE.