A COVID-19 Hotel Contingency Plan From A Seasoned Hotel Manager
Contributed by Rocco Santopietro April 1st, 2020
As a seasoned hotelier with over 30 years, in the business, I have worked through four previous recessions, two Revolutions, and several “Acts of God” ranging from tropical storms/hurricane, inundation to earthquake. Apart from physical damages, injuries and loss of life, the aftermath of those events do always carry an economic impact.
I'd like to provide insights into what we should do as we face the sixth recession since the 1970s and, from the outlook the deadliest in economic terms. If we have not preserved cash, for contingency purposes, the financial portion of this brief article is perhaps the most critical. Although the human aspect is close and dearest to my heart, the financial implications weighs heavily, and could lead to closure of our business. Here is my suggested plan for recovery, not from COVID-19, but from the economic damages it is causing.
Financial ReliefThe most critical first step, if is to project our expenses for the next 120 days. This requires contacting the lender and asking for some type of relief. Remember that despite all governments are implementing incredible measures to protect economies, businesses are being given routes to survival. Nevertheless, Bureaucracy don’t sleep! therefore in order to avoid any later claims, it is wise to issue a forbearance letter requesting a 120-day period of no payments as a first step and additional requests for relaxed debt-service coverage ratios and others are logical as well, if the Government hasn’t yet issued any relief measure to help the industry. Ensure that your request to the lender includes your commitment to the hotel, a new forecast for the balance of 2020 and history of your guest service scores, quality assurance reviews and a reminder of your timely payment record.
Most Large chains will be open to some type of relief and we will need that. Government and the local tourism authority and city officials will be important calls as relief will come from many government sources. Preserving cash is so critical that even if you just received 120 days relief from Transient Occupancy Tax, it would make your cash flow improve. Suppliers can be very forgiving if we have been loyal and current with our payments and might be able to provide services at a discount, now is the time to consider how those businesses can reciprocate by supporting each other. Utility services have not been tested in this environment, but it is worth a try. All in-house contracts should be reviewed. Landscaping and trash removal, copiers and any services must be scrutinized. We must prioritize supplier payments and reach out to national providers for deferred payments.
The most difficult part of this is the layoff of staff. They must fully understand that there will be schedule reductions and furloughs or layoffs. If we can keep their insurance intact with hopes that they can return to work relatively soon, they will be grateful. I have seen many properties going into panic and enforcing immediately layoffs and vertical cuts, remember when laying off you still have to pay severance, as this is unchartered territory my advice is to keep your staff eliminating just new hiring and excess staff, Honesty and the way we communicate with our colleagues is the key, as the situation is equal for everybody they will understand a salary reduction and a period of unpaid leave. There are so many resources for them from the government and from us in the form of information. We are considering a voucher that our team members can use while navigating this crisis.
It is important to reach out to local community organizations to see what is going on in the community. While we may be told that social media should go silent, I say engage! We are part of the tissue of our community. When we posted on Facebook that we had suites at a reasonable rate for those who wanted to self-isolate, we got questions about whether our fitness rooms were open, how we were serving food and more.
The key element is how we communicate, but most importantly is to answer honestly.
In our case, we allow four guest at a time to reserve the fitness room for 45 minutes. We sanitize it after every use and hence can get four guest in per hour. For buffet food, we do not allow guests to touch anything. Our employees will serve what our guests want or alternatively we can deliver the food to rooms/residence.
Contact embassies and other non-profits, local care providers to see if there are partnership opportunities. Contact Colleges and universities for students unable to stay in dorms and those working remotely to see if they would like the convenience of a room that provides Wi-Fi, no clutter, a desk, a place to lay down and rest, a fitness room, pool, food, beverage, adult beverage, basic retail services and in some cases much more. is time for sobering reality you should not count on any real turnaround until mid-May, perhaps even longer, and when the market will start coming back it will be at levels that only feel good because of where we are today.
Revenue Management Strategies
All our financial ratios in less than a week have gone out of the windows. As a matter of fact, this is “Ground Zero”. Hotels in all segments - all over the world have experienced drops in occupancy, average daily rate, and revenue per available room. We cannot any longer compare current hotel performance to that of the previous months, let alone previous year.
Remember this is level playing field. Your hotel is not the only one that has stopped operating, 95% of the hotel worldwide is in the same situation. Dropping rates is certainly not the answer and will not recover enough revenues to cover the discounting. While the pressure to reduce rate is understandable, we should exercise caution in manipulating rates because of the potential negative long-term effects on profitability. These actions just cause price wars in the long run. My advice is to keep your cool and be a price leader also in rough times. Your comp. set will follow (eventually). In this unusual environment, when all over the world hotels have come to a standstill the best practice is to refocus and reshape our pricing strategy based on two scenarios:
Price – based Methods
• Use opaque distribution channel – that allows us to reduce rates while hiding the discount from the customer, that would permit to sell additional rooms while still protecting rate and brand image.
• Targeted rate cuts - Discounted rates could be offered to selected market segments - building effective rate fences that limit the discounts to specific segment.
• Bundle services - Creating a package that bundles a multiple-night stay (e.g., stay two nights, get another one free) or bundle the room with other services at the hotel(e.g., spa treatment, special events), it will help disguise your room rates.
• Unbundle rooms - Another approach is to base our rate only on our core room product and charge additional amounts for any other services that guests might wish to use (like low cost airlines). This should be used for limited period and in specific segment to generate demand only, for luxury hotel has a potential downfall as it might spark diminished customer satisfaction especially in returning and loyalty program guests.
Non - price Methods
• Create strategic partnerships - Another approach is to create strategic relationships with distribution channels. Remember after COVID-19 tsunami, people would more likely travel locally rather than internationally. Focus on local distribution paying the same commission (whether travel agents or third-party intermediaries). They may be willing to deflect their business to you, and you would not need to cut rates.
• Compete on quality – Highlight your USP vs a price reduced room with competition (e.g. Service levels, reduced amenities). Boost your offering (e.g. example, and extended breakfast times, free pick up and drop off). This is the right time to retrain your team to new services and keep them busy and motivated.
• Focus your loyalty program - Reward loyalty program members. Reduce for a limited time the points needed to redeem a free night’s stay, double the points for every night spent. You will certainly have more engagement with your loyal guests.
• Develop additional revenue sources – Remember most likely your guest would be Local or regional when reopening. Try and add additional revenue from your outlet, through promotion and add-ons, events. This would motivate your guests to spend more time in the hotel.
• Reveal your strategic intentions – Operate from a position of strength, let your competitors know what your plans are, let them know if your operating costs are lower or if you have reserves that will allow you to withstand a prolonged price war.
Operational Efficiencies and Business Alternatives
The first step is to ramp up our sanitation procedures in all areas. We can reduce our hotel’s room inventory by closing off a section or floor, saving on utility consumption, staff manning and supplies and by carrying maintenance work that is difficult to do when the hotel is at full capacity.
Housekeeping services can be operated on a request-only basis.
Contacting guests in advance to ensure that they are still planning to travel is prudent.
If all else fails, Get in touch with the local Government, Red Cross, ONG. There will be a need for rooms for those who test positive for COVID-19, but are not ill, those who have mild cases and if that market is not appealing, there are the relief medical teams coming from abroad who really need housing.
At the end of the day, this is about compassion for employees and surviving the worst economic challenge many of us will ever face together.
We will survive and we must remember the toll that this event is imposing on our society, and those who are victims of this virus.
May our luck turn for the better and soon!
Contributed by Rocco Santopietro | April 1st, 2020
Rocco Santopietro is an experienced General Manager of lifestyle resorts, pre-opening and strategic planning, refurbishment, and P&L (profit and loss) responsibility.