Even the most basic financial strategist knows that there are two ways to improve a company’s bottom line — cut costs or drive revenues. In a time of Depression-like shockwaves rippling through the general economy, as happened last year especially during the early weeks of the pandemic, the natural reaction is to tighten up and manage costs.
Reducing staff and offering alternative services are a good start. But there is more that can be done.
Hotel operators are no exception. Payroll is the largest expense for hotels, so the focus on reducing staff and offering alternative services has been a prudent first step to stopping an operational free fall.
And that free fall was hard to stop as the pandemic set in. According to an analysis last September by the American Hotel and Lodging Association, 57,180 hotels were closed because of lack of demand and approximately 8.3 million hotel-related jobs were lost as a result.
With preserving liquidity and slowing cash burn top of mind for hotel owners and operators, the nominal investment in technology and reimagining of staffing has been an initiative for hotels in survival mode. Hotel operators need to make strategic decisions in these areas that also positively support cleanliness protocols.
RSM has identified five strategies, beyond cost-cutting, for hotels to survive the downturn:
Touchless technology for check-in, mobile key entry and front desk requests have been a cost-effective start. Housekeeping staffs have traditionally operated in the back of house with little visibility, but have now been brought into lobbies and common areas to provide guests with peace of mind. This shift has helped curb some of the staff losses associated with reduced housekeeping services.
Rethink dining options
Food and beverage is typically another major revenue source for hotels, and in many properties right now, this category is a shell of its former self. Intimate dinners and expensive on-site locations have been replaced with ideas like butler pantries attached to guest rooms to ensure a safe hand-off of room service orders.
In an effort to control food costs and food waste, many properties are limiting service hours to dinnertime and tightening menus to a few popular items. Some guests will be dismayed by the lack of room service breakfast options, but operators are required in the pandemic era to make choices for the best interest of the property as a whole.
Look for insights in data
During these times, cost cutting is not enough. With occupancy around 40%, vacant properties cannot break even without support to the top line. In the absence of fiscal stimulus that is so desperately needed, hotel operators need to create their own luck. One example of such help is a new hub named Travel Insights with Google, which is built around three tools geared toward destinations, hotels and Google’s commercial partners:
- A public resource for governments and tourism boards that details top sources of demand for a destination, as well as the most popular destinations within countries.
- Google hotel search data to help hotels understand how to target their marketing plans for recovery.
- Travel Analytics Center, which enables organizations to combine their own Google account data with broader Google demand data and insights.
Remember the loyalty programs
Even though the top line should be supported by new customers, many major brands are doing their part to reward and incentivize loyal members back to their brands. Hilton was the first to extend loyalty program membership benefits to next year, but other major brands have followed with additional member discounts on properties, waived fees and specialized personal experiences.
Seek out financial relief
While the $908 billion coronavirus relief package passed in December is a welcome relief for many hotel owners and operators, more aid will be needed to dig the sector out of its recession. The December package included $284 billion earmarked for a second round of forgivable Paycheck Protection Program loans, with hotels and restaurants able to take advantage of individual loans up to 350% of average monthly payroll.
The legislation clarified that PPP loan expenses are tax deductible and included a one-year extension for the troubled debt restructuring relief, which further encourages banks to work with borrowers on forbearance and debt relief through this year. Additionally, the law provided other incentives such as an expanded Employee Retention Credit and business meal tax deductibility through next year.
True recovery for the lodging industry still hangs in a fragile balance dependent on execution of pivot strategies, prudent cash conservation tactics, access to capital, and yes, shots in arms.
For more information on how the coronavirus pandemic is affecting midsize businesses, please visit the RSM Coronavirus Resource Center.