Facing The Facts About The Future

Facing The Facts About The Future
Hotels Need To Assess Their Worth, Future During Difficult First Quarter
By Dennis Nessler by Larry and Adam Mogelonsky | January 7, 2021

During all the initial lockdowns back in March 2020, pure optimism was the name of the game as I applied a sagacious quote from Winston Churchill, “Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.” Fast forward almost a year and the number of total travelers has hardly reset to its ante-covidian level. Staying optimistic is no longer good enough.

This current post-pandemic ‘next normal’ we are currently in has brought about some calamitous prognostications for the hotel industry for the next year ahead highlighting just how stormy the waters will get. As an example, in early July 2020, Chip Rogers, president and CEO of AHLA, stated that as many as 8,000 hotels might close without the proper support from the U.S. government.

Should we be concerned? Is this the beginning of the end of our industry? Or, is this simply more akin to a herd of buffalo struggling through a rough winter and letting natural forces cull the old, weak or infirmed? With so few travelers to go around in Q1 2021, every property will need to face the music and the hard facts of why they exist in the first place.

Let’s do a bit of math to dissect the impact of a loss of that many hotels on the U.S. economy. According to a quick Google inquiry, the country currently has around 54,000 properties in total, so removing 8,000 from this body represents a decrease of roughly 15% of the total available rooms. With roughly 60% of U.S. hotels either flagged or branded, this can also lead to a tremendous revenue loss for the major chains.

But the remaining 85% properties stand to benefit at the expense of those who end up crushed by the pandemic. If these closures are evenly distributed, macro-market RevPAR figures will grow due to the fewer guestrooms to divide by, thus implying an industry recovery and perhaps even allowing some hotels to experience increased occupancy and ADR as a direct result of the reduced supply.

Demand, though, is a whole other story as it is heavily influenced not only by one’s ability to visit a destination unencumbered by viral safety measures, but also gross confidence in the stock market.

While an 85% survival rate may be somewhat bearable in the short run for the total economy that incorporates all other sectors, this says nothing about the number of people—frontline staffers and managers—who will be put out of work permanently by all these closures. Then add to this all the employees still furloughed or on a part-time salary due to lowered travel volume and new technology implementations which render certain duties redundant. With travel and tourism encompassing every tenth job, this is a huge number of people left struggling and not spending.

In a consumerist world, the stock market is ultimately buoyed by people consuming, so any large-scale contraction in the workforce still inevitably trickles up as a market correction. This, in turn, could lead to a stagnation in both local demand and the total number of travelers from all segments as everyone looks to cut expenses due to the fears of another global recession.

What does this mean to you (primarily as an owner, general manager or regional director)? Thinking glass half full, this chain of effects should lead to opportunities to add revitalized hotel products into the market, taking advantage of our current technological innovations to simultaneously improve margins. An infusion of better products will lead to higher levels of guest loyalty and an improved industry over the next five years.

Regardless of whether you are in the 85% or the 15%, now is the time to focus on the future of your property. Just because you may think you are in the latter camp is no reason to throw in the towel just yet. Rather than fall into a rut of strictly minimizing costs, cutting both staff and expenses, or looking at how to liquidate all remaining assets, use this period to plan a reset that is cognizant of all the global market forces at play.

Who can your property appeal to? Are there opportunities to relaunch your product with a different USP? To discern the answers to these questions, start by taking full advantage of your CRM to reap business from the low hanging fruit—targeting past customers with personalized loyalty incentives. Use electronic marketing techniques to fine-tune how you motivate the guests that are out there, and then develop a plan to funnel them from the OTAs and meta-search into direct bookings. The next normal is one of ‘hanging in there’ but also one of rediscovery, and it will take a lot of thinking and hard conversations to decipher where you belong in this global conundrum.

Dennis Nessler
Dennis Nessler is Editor-in-Chief of Hotel Interactive, parent company of Hotel Community Forum. Nessler brings more than 28 years of editorial experience to his position, including some 17 years in the hospitality industry. As part of his duties, Nessler not only covers the industry editorially but moderates various high-level panel sessions at hospitality events and frequently conducts one-on-one interviews with C-level executives.