Article by Giovani Angelini

Bigger Brands and Commoditization?

This global pandemic has created serious financial difficulties for most travel and tourism-related companies/groups. Consequently, the industry will be faced with an increasing number of mergers, acquisitions, buyouts and, unfortunately, some instances of bankruptcy. Like it or not, "Large Global Brands" will become even more dominant, resulting in less identity/personality, and the danger that the hotel business will become even more commoditized.

Lower ROI

History tells us that after every single crisis - whether financial or health-related - the industry has always experienced a drop in ROI. Hospitality professionals who have been in this business for a long time will clearly remember that prior to the Asian financial/currency crisis of 1997, hotel developers within Asia expected a return on investment in hotel assets within seven years after opening. At that time, there was a much healthier balance of supply and demand in most of Asia's hotel markets and destinations.

Unfortunately, however, major crises such as the SARS epidemic (2003), the global financial crisis (2007/2008), the H1N1 pandemic (2009), and the MERS epidemic (2012), brought a succession of negative market situations. From changing spending patterns, shifting trends and expectations, to changing source markets, stricter lending policies, and increasing operational costs - hotels had it tough.

This, and more, will be repeated following the COVID-19 pandemic, and all people/investors/newcomers in this industry must realize this and plan for it.

Also remember that OTAs, with their high booking fees at the expense of hotels, consolidated their position in travel and tourism immediately after the 9-11-2001 terrorist attack/crisis in New York. At that time, the majority of hotels in North America were desperate for business and, in exchange for volume, committed themselves to the high commission of the OTAs. This would then go on to become the industry norm.

As we move forward, asset-heavy operators will suffer from considerably lower ROI. The asset-light model and "economy of scale" will become even more relevant for operators in order to progress. The owner-operator formula has worked well in the past, but, faced with the lower ROIs, operators need to increase their revenue with fewer investment assets. Ideally, revenue from asset-light operations should be higher than revenue from their own assets.

To compete in demanding markets and remain relevant, hotel brands and products, regardless of size and location, must clearly understand their competitive advantage. A well-administered/recognized loyalty program, efficient data-channels-forecast management, a sales-oriented attitude, and a consistent product delivering brand promises are all essential.

Consumer expectations, and rethinking operational protocols

It's become very clear that after this crisis, customers will change their priorities about what they value most and what is important to them. They will be far more concerned about health-safety-security (well-being) than brand-location-price. The industry may need to rethink, revise, and perhaps redesign the way hoteliers operate, and at what they are good at. It's time to streamline operations for enhanced effectiveness/efficiency in response to trends, innovations, and travelers' expectations. Also, it's time to put your house in order, not just tweak it.

The pandemic is likely to cause "radical shifts" in how the business operates, and how consumers behave. Going forward, the travel industry needs to re-think, re-envision, and re-design what the future will look like.

Consumers' desire to travel, explore, and connect will remain after this shock, but travelers' mindset may shift, and they will distance themselves from the bad habits of the past. Showing care and compassion is a cornerstone of our business, and now is the time to show it as consumers will be less tolerant of bad/thoughtless behavior, and far more selective with their patronage. Of course, the desire for new experiences and value for money will remain important deciding factors when selecting a property or a destination.

Operators must understand how the expectations and behavior of consumers are changing and alter the way they express their company's values and priorities, and the way they respond to those changes. The industry needs more team spirit and camaraderie towards this common goal, with full recognition that people are the strength behind any successful hotel brand. This will not change.

In all probability, recovery from the pandemic will be gradual as consumers will only travel when they are confident that the crisis is under control. In the short term, less long-haul travel is anticipated, and more business will come from regional and domestic markets. China remains by far the country with the strongest potential within Asia.

It is anticipated that over-tourism in popular destinations may not return for some time to come. In the short-medium term, expect to see less focus on mega destinations and more focus on eco-friendly and cultural attractions that highlight environmental, social and community care. We must accept that during the recovery - which may take longer than seen in other recent crises - the market will expect to see many discounts and deals. This is only natural. Respond positively to this but do not drop your base room rates. It is important to track and respond to the sentiments of the various market segments and develop attractive products/packages based on added benefits.

Focus on the right offers and the right messaging throughout all phases of recovery.

Hygiene, security, safety, and training

No short cuts and no compromises in those critical areas. They must be a competitive advantage of the brand.

Cleaning and sanitation have become a customer expectation, and they must be part of a hotel's marketing message.

The oversupply situation in most of the Asian cities/destinations has made the past decade particularly difficult. The strong demand of shareholders and corporate officers to continuously increase the cash flow/profitability of the hotels in this highly competitive environment has taken the focus away from physical product upgrades/improvements - including attention to hygiene, security, safety, and training - and in most cases they have been kept at the very minimum required. This is a terrible habit that must be corrected.

It is worth considering installing thermal imaging cameras at the hotel's guest and staff entrances permanently? There has been a positive reaction to this by the authorities and by a few customers. And until a vaccine is found, we have to get used to body temperature-taking at the entrance of every outlet and enforcing some social distancing measures.

Hotels in general, need to do a better job in a few important areas:

  • Ventilation systems for rooms and public areas have to be modernized, and provision for air purification, sterilization, and deodorization systems has to be available for guest rooms, public areas, and employee areas.
  • Programs to be in place for regular guest room sanitation, sterilization, and decontamination done by certified experts.
  • Provision for in-room fresh air (windows) should be made available wherever possible. A very high percentage of hotel guests prefer fresh air.
  • In-room soundproofing has become so important for travelers who are tired of all forms of pollution, including noise, light, and smoke, and who are looking for a clean place to get away and rest.
  • The overall hygiene of in-room bedding could be improved. Ideally, consideration should be given to infectious-control bedding products similar to the hermetically sealed bedding for mattresses, pillows, duvets, cushions to keep viruses and allergens out. Of course, brand standard lines will have to be used as well.
  • Sanitation and disinfection of all areas used by guests and employees must be done much more frequently, by the hotel or by a qualified contractor using high-quality products.
  • Additional focus on employee vaccinations. Personal hygiene standards must be among the best in class.
  • This crisis is forcing all involved in hospitality to be more creative.

In Food and Beverage, important areas to look at include:

  • Food sanitation and safety regulations which are paramount to ensure the health of consumers.
  • Adjust menus based on demand. Avoid exotic/wild animal meat and limit options to globally accepted livestock. And more organic and healthy items.
  • Guests will want to see gloves, masks, and surfaces being wiped down often, practically after every usage.
  • Hand washing of glasses and equipment in the bar or other parts of the hotel (like in rooms by the maids) is a thing of the past. Machine washing is a must.
  • After this crisis, there may be higher demand for room service and/or take-out items, as some guests prefer privacy.
  • Food displays and buffets are to be protected by food shields (sneeze guards), and proper equipment should be installed to keep the food temperature safe (hot or cold).
  • Health-wellbeing-wellness has become a top priority for travelers, and this also includes a healthy diet while on the road or vacationing.

MICE

The industry will experience rapid changes in all areas, including the MICE business, which is an important market segment for most operators. There may be less demand for face-to-face meetings in the future and more demand for high-quality integrated-hybrid-virtual-live streamed meetings and events. Hotels will have to prepare for this, including remote simultaneous interpretation.

Plus

  • Now is an appropriate time to review all insurance coverage and assess if there are any opportunities.
  • Sustainability is an area where the travel and tourism industry, including hotels, has to do a better job. Our sick planet demands that we should have more respect for nature and conduct/practice more sustainability in all aspects of work and life.
  • Learn as much as possible from this outbreak, have a contingency-emergency plan in place, and remember that every crisis presents business opportunities. For example, will hotels have an advantage over Airbnb and OTAs after this crisis? This is something we must all look at.

Recovery Plan

As the situation surrounding COVID-19 continues to evolve, it is important to keep abreast of industry trend-innovations-forecasts and booking behaviors that will ultimately help to shape strategies and actions

The pandemic will subside over time, and people will plan to travel again. That would be the time that you "need to hit the ground running" with the objective to maximize revenue before and after travel demand picks up. For the time being, it is a must to keep loyal guests, and new potential customers, engaged at all times, be supportive/empathetic, and follow through on a solid strategic plan. The plan must be a team effort and all to take responsibility and accountability.

Global coordination for a vaccine?

The continuing spread of the virus around the world and the associated damage to global economic activity (worst global decline since the great depression of the 1930s?) means the world has to come together in trying to come up with a proper cure and vaccines. Despite many geopolitical differences and rivalries, global coordination is needed to tackle the COVID-19 crisis because "even with the best will in the world" the efforts of individual countries will not be enough. A crisis of these dimensions requires globally coordinated action both in health and in economic activities as the pandemic knows no international borders. It is a global effort for mankind.

Travel is one of the world's most resilient industries but, without a vaccine, this virus will not go away on its own and the world cannot resume regular economic activities. And, we all continue to suffer.