This morning I hosted a round table for the Turnaround Management Association (TMA) on the Future of the European Hotel Industry where we had a great discussion about what we think the next 12 months and beyond will be like for hotels.
Like 2020, this year has been a rollercoaster, for some European markets there has been the benefit of staycations and an albeit limited tourism season, but this has not been universal, and whilst government support has been generally supportive this is now tapering away.
There are still challenges to be faced, and in recent weeks the focus has been less on the amount of COVID-19 infections or new variants and more about the supply of goods and staff as well as some significant increases in operating costs, making predictions about hotel performance next year and beyond still difficult.
While leisure-based hotels can expect a continuation of domestic based demand at least for another summer season, and those reliant on international tourism can look forward to the prospects of a return to some degree of international travel, particularly from the lucrative north American market. However the sections of the industry which have lost out from corporate activity, such as conferences and exhibitions ,are still on uncertain ground.
Balancing budgets and customer service
The general expectation is that in Q1 2021 the sector will remain soft because of less leisure demand at this time of the year, whilst Q2 and Q3 should continue to grow (all other things being equal over the current year).
However operators are right to remain cautious as they go about their budget and business planning for 2022 as the key balance to strike is an ability to deliver good customer service from a still subdued demand and deliver a profitable business – particularly for those at the higher end. There will be a need to charge a premium price during periods of high demand.
The hotel industry’s staffing crisis was unimagined and there appears to be no short-term solution to it. A recalibration of work-life balance post-pandemic along with wage inflation has diminished the pool of willing labour and available talent across Europe, meaning that brands are increasingly considering importing staff from further afield.
But the opposite approach will probably be needed to handle the supply chain problems being experienced: more local sourcing would be the interim solution, albeit there could be cost implications and it may not always be a viable option in every market.
Long term investment to address the fuel crisis
The cost of energy is adding further pressure. With double digit growth in costs expected in all markets, further eroding the reduced profit margin. There’s no easy solution to this in the short-term, hotels simply consume a lot of energy, and longer-term sustainable solution require upfront capital expenditure.
Certainly a hotels’ ESG policy is now expected to be part of its DNA, and there is an ever present focus towards brands committing to Net Zero Carbon timeframes from both consumers and governments. The capital expenditure implications need to be considered alongside the payback, as well as an operator’s need to remain competitive.
In each country there will be winners and losers, while some have seen a boom this year, there’s no time to rest because the challenges are changing week-to-week, if not day-to-day.
It will be those owners and their operators who are on the front foot, adapting and innovating efficiently, and serving their customers well, who can maximise their profit and survive the ongoing turmoil, which is becoming particularly long-term.
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About the Author
Ben Godon is head of Hospitality Asset Management at Colliers, with almost 30 years of experience operating and advising within the hotel sector for brands in the UK and overseas. His expertise includes capital investment programmes as well as driving improved performance in operations.
To contact Ben, email ben.godon@colliers.com
