Impact of COVID-19 on the Hospitality Industry and Implication for Operations and Asset Management

Source: Photo by anon_tae from Shutterstock
Source: Photograph past anon_tae from Shutterstock

Past A.J Singh, Ph.D. University of Texas, Rio Grande Valley and Bing Wang, Ph.D., Harvard University  – Graduate School of Design

Introduction

Amid all existent manor asset types, hospitality existent estate avails, together with retail, have witnessed the almost disruption from the COVID-nineteen pandemic. As ane of the most service-intensive real estate asset types, the risks facing hospitality real estate underscore potential cascading amercement to and fragilities of the global physical landscape. This commodity focuses on the impact of COVID xix and ongoing adaptation of the hospitality industry, with specific attending to the short- and long-term impacts of COVID-19 on its business organization operations and nugget management strategies. Based on secondary data compilation and from academic and industry reports and content area experts, this commodity aims to create a reflective and instructive document for manufacture and students to build their agreement on the changing functioning of the lodging sector and adjustments in its practices brought about by the pandemic.

Touch of COVID-19 on travel and hotel industry performance

According to the United states Travel Clan, travel spending declined by 42 percent in 2020 (almost $500 billion) from 2019, with international travel and business organisation travel suffering the sharpest declines. International travel spending fell 76% (compared to 34% for domestic travel) while business organization travel spending reduced 70% (compared to 27% for leisure travel) (U.S. Travel Association, 2020). Since the World Health Organization declared COVID-19 a global pandemic in March 2020, hotels worldwide have seen precipitous declines in occupancy. N American hotels closed 2020 with a 43 percent occupancy and a RevPAR decline of 48 percentage in the same twelvemonth, according to Smith Travel Research. Hotel closures, layoffs and furloughs resulted in viii.3 million lost jobs in just March and Apr 2020, and 498,000 jobs lost in December 2020. With reduced staff, service levels were jump to be affected and the American Customer Satisfaction Index (ACSI) clearly shows a decline in satisfaction scores and an increase in client complaints later the outbreak of the pandemic. American Traveler and Consumer sentiment research results from United states Travel Association show that Americans are even so wary of travel, albeit a growing expression of interest in safe travel destinations (American Customer Satisfaction Index, 2020).

With the increasing availability of vaccination and a gradual render of travel and other economic activities in society, hotels, together with other service-oriented nugget types, will brainstorm to receive more human foot traffic and welcome back their guests. Every bit one of the most impacted industries by the pandemic, the lodging industry has seen several prominent hotels in major destinations shut. In fact, near 200 of the 700 hotels located in New York City have airtight since COVID-19 hit, and many of those closures are expected to be permanent as debts mount. While the hotel manufacture is no stranger to event-induced downwards cycles, the pernicious nature of this pandemic has been specially challenging. At this stage, we will reverberate on specific business impacts of COVID-19 on hotel companies and asset managers, examine the problems, tactics and strategies they need to implement in gild to remain resilient and reframe their near- and long-term prospects.

With over 55,000 branded, independent, and managed hotels and five million+ hotel rooms in the U.s. (American Hotel & Lodging Association, 2020), the lodging surroundings had go complex in the past several years for owners, operators, and asset managers. As a upper-case letter- and labor-intensive manufacture with high fiscal and operating leverage, the precipitous downward demand induced past the pandemic has tested the resilience and management capabilities of the various participants in the lodging industry: owners, asset managers, operators, franchise companies, developers, lenders, suppliers, and employees.

Postal service-COVID commercial real manor and hotel investment trends and sentiment

Based on the contempo Urban Land Institute and PwC Emerging Trends report, in 2020 nigh commercial real manor was broadly affected by COVID-xix in a negative way. Specifically, backdrop with a public employ component such as offices, retail, apartments, hotels, sports and amusement venues have been singled out as potential spreading locations for the coronavirus, most of which were at times either close down and/or had use restrictions imposed. Among the written report's surveyed respondents, only 44 percent felt comfy making long-term strategic existent estate investment decisions; 74 percentage of the lenders and 67 per centum of the disinterestedness investors indicated tighter underwriting standards for new real estate projects, with the overall consensus of poor to fair hotel investment and evolution prospects in 2021 (PwC, 2021). Smith Travel Research indicated that well-nigh 2020 projects were deferred versus abased (Hood, 2021). Due to the reduced performance levels, the hotel transactions market dropped in 2020. While the economic uncertainty widened, the availability of debt dwindled, and the large bid-enquire spread prevailed. For distressed hotels, sales were consummated at fifteen to twoscore percent disbelieve to pre-pandemic values, which led to private disinterestedness and Institutional investors taking reward of reduced pricing.

Instilling travel confidence: industry and brand safety initiatives

With daily statistics on the number of cases, deaths, and related news items bombarding consumers through various media channels and platforms, it is not surprising that travel confidence since the breakout of the pandemic has been low. Based on MMGY's December Travel Safety Barometer (MMGY Travel Intelligence Report, 2020) (ranging from 0 to 100), traveler perception was cautious. While international travel scored 35, closer-to-dwelling domestic travel was perceived to be safer with the Barometer index reached 50. Travel safety perception also varied by segments, where dining and entertainment were nonetheless viewed unsafe (47) and lodging fared slightly meliorate at 51. Nevertheless, business organization travel and cruise were viewed as unsafe, scoring at 38 and 30 respectively. Despite the comeback in traveler sentiment conveyed by the Travel Condom Barometer, the hospitality industry needs to continue to work on their safety protocol messaging to convince the wary consumers.

In fairness to the hospitality industry and hotels, they accept reacted remarkably well to this claiming and rolled out several industry, corporate and property level safety policies, procedures, and measures. The American Hotel and Lodging Clan (AH&LA) took the pb in establishing industry-wide hotel enhanced cleaning guidelines with their "Stay Safety" initiative, a plan adult in conjunction with a representative advisory council. These guidelines were based on benchmarks established by public health authorities, such every bit the Center for Disease Control and Prevention, to instill a sense of confidence for hotel guests and employees that the industry was united behind a common ready of cleaning and rubber practices. Since its issuance in April 2020, "Safe Stay" has been widely endorsed by the major hotel companies as well equally industry and state hospitality associations. It was a timely and fantabulous starting betoken. Since the launch of "Stay Safety," all the major hotel companies accept launched their own safety protocols to clinch their associates and guests that they are taking added precautionary measures as they begin to open for business. Implementation of these protocols may continue to be a challenge due to the diversity of owners, reduction of staff, limited make oversight, and range of hotel products, size, location and pattern elements. Being largely a human contact business organization with multiple guest and employee touchpoints, ongoing monitoring of these protocols will be vital for instilling a perception of condom, particularly as travel slowly returns to normal. With social media and other platforms negative feedback is just a click away.

Marketing and asset utilization

As travel need declined from March 2020, operators and asset managers looked at creative ways to generate revenue and utilize hotel assets. While large meeting and convention concern is nevertheless at to the lowest degree one year away, hotels accept generated ideas to spur local and regional leisure travel. Concepts, such as "Staycations" and other food and beverage packages, accept supported hotel weekend travel. Some hotels take worked with local hospitals to convert part of their hotels to suit traveling nurses, healthcare workers, and in some cases even COVID patient centers. The work from home concept has helped hotels located in resort destinations to offer long-term discounted room rents to induce guests to catechumen their hotel rooms into temporary dwelling offices. As work from home incurs the risk of an unhealthy lifestyle, some hotels accept created stay packages with a health and fitness component. Typical operational policies have also been relaxed to spur travel, including free cancellation and flexible check-ins and cheque-outs. Some hotels have fifty-fifty leased out underutilized kitchen space, converted into "Ghost Kitchens," (a COVID-era "pivot"), where the kitchen is used to prepare and evangelize food to select service hotels or local customers.

The pandemic has challenged revenue managers, who are an integral part of a hotel's asset utilization and optimization team. In a recent best-do panel word hosted past Hospitality Sales and Marketing Association International (HSMAI), certain insights emerged. While discounting isn't producing better results, acquirement managers are analyzing the turn a profit from a revenue strategy perspective versus based on occupancy. Marketers have focused on various marketplace intelligence sources to understand different segments of the market, their travel motives, beliefs, value perception changed by the pandemic, and increased emphasis on customer communication. The current crunch has made forecasting a claiming as hotels cannot rely on historical data and will need to input more than externally generated data points to create predictive models for demand forecasting.

The guest and service feel

The post-COVID functioning requires an unprecedented degree of versatility for hotels. The careful direction of social distancing and implementation of imperative hygiene measures are critical to restore customers' confidence and generate renewed need. As announced past the World Travel and Tourism Council, hotel operators and nugget managers should conceptualize a global protocol for the "new normal" to exist adopted by international hotel operators and contained hotels. How to think innovatively about new functions within the same physical infinite is vital for postal service-COVID hotel nugget management. For example, redesigning hotel public areas through rearrangements of article of furniture layouts and encouraging broader utilize of outdoor settings when the weather allows are ii of many new possibilities. In addition, how to innovate and implement new technologies in various operational steps is critical – such as automating check-in/bank check-out, enabling contactless transactions throughout the guest'south journey, and utilizing mobile apps for food ordering and laundry services during stay. In short, the operational priority is to re-imagine the existing spaces and streamline services in order to respond to the new context while keeping in mind the invitee experience and profit optimization.

Financial and greenbacks catamenia management

Liquidity management, cash period management, and allocation of working capital are as well increasingly important as hotels are forecasting a gradual restart. With the current drought of travelers and reduced demand for business travel, it may take several years for hotels to ramp upwards and re-stabilize their operations. During this process, it is critical for them to reevaluate the share of fixed costs in favor of a more variable construction to benefit from a hybrid model before the need grows back to its normalcy. While toll direction needs to consider the touch of the occupancy charge per unit, hotel overheads, salary costs, and the performance of the various points of sale, adapting and reinventing a new operating business organization model is critical. How to identify new opportunities, including the alignment of business volume with the right scale of workforce costs, needs to be a priority.

Capital letter expenditures

To go along hotels functioning, fresh and relevant, hotels spend five to nine per centum of their revenues to replace and update capital items such every bit Furniture, Fixtures, and Equipment (FF&Due east). Hoteliers significantly reduced upper-case letter-expenditure spending in 2020 because of the COVID-19, dropping from about $7.iii billion in 2019 to about $2 billion, co-ordinate to a new trend analysis report past Hotel News At present (Wroten, 2020). The report likewise stated that hoteliers changed their spending accent this year, focusing on matters such equally cleaning and sanitation equipment, signage about social distancing and wearing masks, reconfiguring food-and-potable outlets, and installing air-filtration systems and deemphasizing expenditures such as software and engineering upgrades, new room designs, and fitness center improvements.

Hotel brands have worked with owners to ease their capital expenditure brand expectations and increase free greenbacks period. For instance, Marriott along with other brands will exist delaying all regular cycle renovations due in 2020 for ane year and delaying all FF&E reserve funding for 6 months. The company volition also be deferring all brand initiatives and suspending all brand audits for the time existence. Marriott is too working with owners to close hotels on a temporary ground.

Homo and social capital direction

With staffing cost representing 30-35 percent of the operating expenses in a hotel, labor represents a significant expenditure for hotels. With hotel occupancies running well below 50 percent for the by year, hotels were faced with the hard decision to cut staffing. With business organization running 75 per centum below normal levels, the belatedly Arne Sorenson, CEO of Marriott hotels had to make the tough selection of slashing 4000 corporate jobs. This scenario filtered its manner to the belongings level across all hotel companies. The number of jobs in entertainment and recreation plunged 31 percent between September 2019 and September 2020, co-ordinate to the Bureau of Labor Statistics , and the hospitality sector had an overall unemployment charge per unit of 38 pct in 2020.

Managers and owners were challenged with making tough choices whether to layoff or furlough employees, who to layoff, and what benefits and severances to provide, while at the same time ensuring the condom of employees retained, dealing with marriage issues in tough union markets like New York, and hiring labor lawyers and consultants on issues to prevent futurity litigation. All in all, managers had to larn to manage under huge financial force per unit area with tremendous resources constraints and yet maintain morale and service levels.

The current pandemic has presented an opportunity for hotel companies to convey trust and good citizenship. Whether it is an independent possessor-operated hotel or function of an international brand company, by conveying empathy towards their employees, suppliers, and the local community, these hotels volition recover from the COVID crisis with a much stronger brand epitome. Supporting and appreciating healthcare workers, providing free meals, and profitable low-income employees are simply some of the small or large gestures that volition distinguish hotel companies and reinforce their social and corporate images going forrard.

Asset managers and contract review

The pandemic-induced downturn over the by 12-fifteen months has forced owners and the various contractually bound stakeholders such every bit brands, operators, lenders, and service providers to thoroughly review their agreements and contracts and then they are each able to sustain the crisis for their mutual benefit and thrive post-COVID. Equally Republic of chad Sorenson and Gabriel Stein accept noted in their recent BHR article:

Asset managers played an integral role in identifying opportunities, and in many instances, led discussions with stakeholders around a broad array of relief strategies. The goals of these negotiations were to obtain fee relief, change the scope of services, defer payments, and/or agree upon less restrictive terms which would provide additional operating flexibilities, allowing asset managers to focus the use of cash on the most critical expenses. Industry partners were responsive to the needs of the hotels; brands loosened standards, operators reduced shared service fees, lenders waived Piece of furniture, Fixtures & Equipment (FF&Due east) contribution requirements, and vendors agreed to payment plans. While many of these actions were self-serving to each political party's pandemic survival strategies, these exercises gave asset managers a new playbook for future downturns, contract reviews, or functioning concessions.

One likely modification to future direction agreements will probable categorize pandemics as force majeure events, with room to negotiate payment obligations, and authorisation to close a belongings. Most current management agreements have a very loose association of a pandemic as a force majeure event.

The "manchising " business concern model coined a few years ago describes a brand direction contract that tin can be converted to a franchise agreement. This structure can offer benefits to both the make and the owner. With the growth of quality third-political party managers competing for opportunities, brands are finding that the direction contracts space has go crowded and competitive. Nevertheless, by assuasive an investor the right to convert to a franchise, owners may exist inclined to rent a make managing director equally it provides potentially lower fees and the optionality they are seeking. As the value of a hotel deal upon sale is negatively impacted when it is encumbered with a management contract, and given the electric current uncertain environment where owners become dissatisfied with management performance and may want to go out the investment, unencumbered, manchising as a business model is gaining some traction with branded hotel companies and may stay on and abound later the pandemic.

Futurity and recovery outlook

As the situation evolves, other challenges will compel hotel owners and asset managers to recall through diverse strategies for building resilience in the operating model and in the market place partition. Using social media to develop a new sales and marketing strategy to attract a new segment of customers, in particular, a more than domestic clientele, should be one of the priorities. The crisis will eventually be behind us, and as such, various stakeholders of the hospitality industry need to set up operations for when life returns to normal, and hopefully, the pent-up demand for travel volition pb united states to a robust recovery. Recruiting employees, preparation, maintaining safety protocols, and managing the guest feel are just some of the challenges on the horizon. Nosotros believe the hotel industry, in general, has adjusted and grown more than resilient and innovative during the crisis, and this will help them pursue new opportunities and better navigate the side by side crunch.

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