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HotStats | March 17, 2020
COVID-19 puts an end to 11 years of unprecedented growth in the hospitality industry. There is no coating: The coronavirus has caused panic around the world, throwing markets into chaos, postponing conferences, crushing travel and emptying drugstore shelves.
It’s still early days, but the impact has been swift and pernicious for the hospitality industry as travel has come to a standstill, drying up occupancy and throwing a bad revenue curve and accentuating spending, which in turn will put a strain on spending. a drag on hotel results.
The virus is there, and it does what viruses do: invade and infect. The hospitality industry is and will continue to take a hit for the foreseeable future. But there is a silver lining: it will end. Let’s be clear: the hotel industry needed a fix, and while it wasn’t the sweet goodbye everyone was expecting, it was the adios that was given to us.
Yes, it will hurt, but people are going to travel again, companies are going to have meetings and conferences are going to be on the ground. It is the end of a prolonged cycle and the start of a new one. A phoenix rises from its ashes. Will you be ready for the rebound?
HotStats monthly hotel profit data allows us to look back and learn from the past to limit losses and come back stronger than before.
What we know
This crisis will affect all hotel operations around the world. Demand will fall in all segments and affect all hotel services.
People are going to stop traveling for the foreseeable future. The inevitable truth is that the hospitality industry is very sensitive and usually the first industry to be affected in a global crisis. Health problems scare people, and scared people tend to refrain from flying and staying in hotels.
The impact on hotel profits is being felt in key cities in China where the coronavirus has hit hotel markets hard. In January, gross operating performance per available room (GOPPAR) fell 49.1% year-on-year in Beijing, 48.1% in Shanghai and 74.2% in Hong Kong.
This is explained by the much smaller drop in revenue per available room (RevPAR) in Beijing (-24.6%), Shanghai (-26.2%) and Hong Kong (-56.8%), sending a message clear to hoteliers around the world that although revenues are dropping sharply, they must act quickly to cut costs while there is still time.
Profit and Loss Key Performance Indicators – Beijing (in USD)
| KPI | January 2020 vs January 2019 |
| Occupation | -16.0 points to 56.3% |
| Average room rate | -3.1% to $ 120.48 |
| RevPAR | -24.6% to $ 67.80 |
| TRevPAR | -23.0% to $ 121.90 |
| Pay | +5.9 points to 33.5% |
| GOPPAR | -49.1% to $ 27.98 |
Source: HotStats
What we have learned
Similar to the coronavirus, the 2008 financial crisis was a sudden shock that had a definitive global impact.
And while the fallout spanned many months, it was initiated by the collapse of Lehman Brothers in September 2008, which rocked hotel performance, leading to sudden and significant declines in year-over-year profit per room. key markets, such as London (-11.7%), Vienna (-26.4%) and Amsterdam (-23.0%).
For hotels around the world, 2009 was one of the worst declines in history, with major declines in YOY profits recorded in Berlin (-9.6%), Budapest (-33.3%) and Prague (-29.2%).
However, many markets recovered quickly, with Amsterdam and Budapest hotels starting to regain lost ground in late 2009 / early 2010. And for London hotels, in particular, it is a return to the status quo in 2010. with growth recorded at 14.1%. % AA.
Source: HotStats
The global financial crisis, much like the aftermath of September 11, tested the courage of hoteliers as they were hit by cuts in revenues and profits. In those dark days, hoteliers sought salvation wherever they could, often leading them to online travel agencies as a lifeline.
While tactics like this can secure a few more bookings than they otherwise would in the short term, they come at a considerable cost and are a proven handicap, limiting the benefits in the long term.
Beyond online travel agencies (OTAs), one of the instinctive measures hoteliers take in the event of a disaster is to reduce fares when the occupancy rate drops in order to stimulate demand. As one hotelier told us, this ploy won’t help this time around because people just aren’t traveling.
It has nothing to do with the price. He also told us that he would keep rates at a normal level so that when the market rebounded there would be no difficulty in raising rates as they never went down.
Meanwhile, since labor accounts for the bulk of a hotel’s costs, it’s normally the first thing hoteliers cut back when times get tough. Sadly, there will likely be layoffs in the hospitality industry, with one hotelier telling us that debt service coverage comes first when there is a crisis of this magnitude.
While a thorny area awaits us, optimists point to a V-shaped recovery in which there is a period of economic decline, then a short trough, then a rapid recovery. Meanwhile, a critical business analysis needs to be done to understand where costs can be reduced and efficiency gains can be increased to limit short-term losses and facilitate a faster recovery.
What can you do?
The hospitality industry in 2020 is quite different from that of 2001 or 2009. It is more sophisticated, agile and has a set of tools to adapt to external impacts.
In the short term, the virus is likely to strike the hotel supply chain in all departments and present significant staffing challenges. Actions to limit declines will be region specific, but in general terms here are some steps to consider:
Returned
- Know your segments and when they are likely to return. Be ready to welcome them again with added value.
- Don’t cut rates at random. The data suggests that hotels that sacrifice the rate to increase room occupancy suffer larger profit losses and take longer to recover. Lower rates will not stimulate demand. People are not traveling due to health issues and government and company decrees.
- Rethink cancellation policies to be more flexible. Customers will appreciate it and likely become more loyal.
- The events have been suspended, not canceled. They’ll be back, so know when they’ve been rescheduled and be ready to take advantage.
Costs
- Limit marketing spending during the crisis because the health advice is not to travel, and therefore no amount of marketing is going to entice people to come to your hotel.
- Don’t throw all of your inventory into OTAs. No discount amount will get people through your doors.
- Benefit from all government subsidies on wage costs and fixed costs (for example, property tax), as well as on loans. Tax measures will be introduced to limit losses, and your hotel may benefit from low-interest loans to help you meet the challenges ahead.
- Because occupancy will be dropping for a while, if you have the capital, now is the time to reinvest in your property with CapEx improvements.
Finally, check out monthly data to measure performance against that of other hotels. This way you will see where improvements need to be made as well as where you are outperforming the competition. The right tools can make the difference between your hotel weathering the storm or sinking under the pressure.
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