As we emerge from Lockdown 2.0 it is becoming apparent that hoteliers and hotel investors will have to navigate a whole host of issues as restrictions, lockdowns and uncertainty become part of the new normal.
In some respects, the first Lockdown was more straightforward. By that, I mean hoteliers did not have a choice; they had to close. Since then, tiered regional restrictions and Lockdown 2.0 have brought an element of choice and uncertainty in that not all hotels have to close. This has meant difficult decisions have to be made by owners and operators as to whether they should stay open or close their doors to the public. This question of ‘if you should stay open’ is something owners and hoteliers will increasingly have to address until a vaccine programme has made a significant impact upon the spread of COVID-19. The primary driver in reaching a decision will be a financial one – do I lose more money by staying open with very little demand than if I choose to close?
So, when is it time to go into ‘hotel hibernation’? When considering whether it is worth staying open, there are several factors which should be considered when managing your hospitality asset:
- Who are your customers?
Despite the extraordinary resurgence of the domestic leisure business - as correctly forecast in our Hotel Recovery Index - it now looks likely that if you are reliant on tourists for your business you may need to consider closing your doors. This is for a number of reasons, including demand tapering off during the winter and additional regional restrictions. Prior to Lockdown 2.0, the UK leisure business was recovering well, with October looking strong, and this trend would have continued into November, but Lockdown 2.0 has interrupted this resurgence in domestic travel. In contrast, if your client base consists of corporate customers and you continue to receive bookings from business travellers, it may well be worth considering continuing to stay open, although bear in mind the fact that the Government currently recommends only essential business travel.
- What facilities do you have?
With the onset of Lockdown 2.0 came the closing of all nonessential businesses. With beauty salons, Spas, gyms and other leisure and restaurant / bar facilities falling into this bracket, hotels had to close some of their other key revenue departments. Not only that, conference facilities and halls are not being utilised and have largely sat empty since the first lockdown. This is expected to remain the case for some time, as it is unlikely that there will be any large business or social functions until the pandemic is over.
- How much Government aid are you receiving?
The Government has put in place a number of support measures for businesses, and as mentioned due to the Lockdown 2.0, they have also chosen to continue the Furlough Scheme until March 2021 in a form still to be confirmed. What aid you receive as a business should be factored into your decision as to whether it is beneficial to stay open or close your doors.
- When should you reopen?
Lockdown 2.0 is due to finish at the beginning of December, with a return to tiered regional restrictions based upon local levels of COVID-19 infection. If you have chosen to close your doors throughout Lockdown 2.0, this does not mean you should automatically look at immediately opening your hotel
Whilst the Christmas and New Year period is normally an exceptionally busy time of year for hotels, 2020 has been anything but normal, with Christmas and New Year parties being unable to go ahead even with the end of Lockdown 2.0. This impacts not only party bookings related to hotel function rooms, but also room bookings, as the lack of large-scale festive parties will curtail the usual influx of travellers looking to stay in hotels during the season. However, if you have a restaurant, as long as there are no local lockdown measures put in place in December, smaller groups may still wish to celebrate the season, so it is worth considering opening your dining space. Additionally, in some hotels a number of leisure bookings which could not go ahead in November due to Lockdown 2.0 have moved to December instead of being cancelled outright. Therefore, not only are hotels retaining deposits outright (a cash flow benefit) these moved bookings give some a purpose in opening their doors at the end of Lockdown.
- Where are you located?
Linked to the point above regarding your customer profile, your hotel location is a crucial factor in the decision as to whether you stay open. If you are based in a leisure destination more reliant on domestic leisure travellers, once government restrictions are softened, it may be worthwhile considering re-opening for the December festive period. However, if you are in a location with corporate and international leisure business dependency, it may be worth staying closed until early 2021.
It is likely that up 50% – 60% of all hotels will have ended up shutting their doors across Lockdown 2.0 alone. The net cash benefit of opening or closing can be marginal. Those that choose to stay open have most likely done this to avoid further ongoing disruption to their broader business, clientele and teams, rather than to make or lose marginally more money. Taking into account the points above, the key question may be not “do you make money by staying open”, but rather “do you lose less money by staying open?”
Operational Tips and Tricks?
- What are the key activities to continue during ‘hotel hibernation’?
Ensure you continue with sales and marketing activities. It is essential to keep communicating to your customer base, especially if you have had to close the hotel. You need to inform them about what is going on behind the scenes, and about your plans for the future including when you are likely to reopen. This reaffirms that the close is temporary and that activities will pick up as soon as you are able to, whether that is immediately in December when Lockdown 2.0 ends or in the New Year.
- How to minimise “cash burn” during closing?
One way to reduce spend is by renegotiating contracts with key suppliers. One example is linen contracts. We recommend discussions with all key suppliers to find a pragmatic approach to support hotels whilst they are closed.
- How should you discuss matters with your lender?
The FCA have out in place advice relating to Capital Repayment Holidays in the face of the COVID pandemic. If you are struggling with cashflow and finances, we can offer advice and assist in proposing a payment holiday with your lender, but it is important to keep lines of communications open with them.
- Top tips for managing relationship with hotel operator/ brand?
Make sure your Operator is focused on your individual needs. Do not get bundled into having to live with decisions that are being made on behalf of a cluster or group basis.
- How can hotels repurpose facilities they are no longer able to use e.g. function rooms?
Now is an opportune moment to engage more with the local community. No doubt they will also be struggling with the pandemic and the restrictions of Lockdown 2.0, so why not consider letting Community groups use function and meeting rooms as community spaces? Post Lockdown 2.0 they could be used as temporary Village Halls perhaps? Not only will this solidify relations with the community, it is something that can be communicated to customers through social media and could also help garner positive PR for your hotel.
About the Author
Head of Hospitality Asset Management at Colliers International, Ben Godon has a career that spans more than 28 years and he has developed his expertise within the sector working in a variety of management roles in a diverse range of hotel properties and brands both in the UK and overseas.
For more information, please email [email protected].