Tales from the Front: The Hospitality Industry and COVID-19
With the present crisis have come myriad cancelled events and travel bans, as well as consumer reluctance to travel voluntarily. While no one has been entirely unaffected by the virus, both the nature and the degree of the effects have varied wildly from one industry to another, with some struggling to safely meet unprecedented demand and others struggling to stay afloat with no customers.
Hotels have been some of the most hard-hit in the latter category. With no events to travel to and a hesitancy to travel regardless, consumers’ cancelled reservations and lack of new ones have led to an abrupt and devastating drop in revenue for the hospitality industry.
To find out how finance professionals in hospitality are thinking about and responding to this crisis, Strategic Treasurer’s Craig Jeffery, Managing Partner and Podcast Host, interviewed Maria D’Alessandro on Episode 96 of the Treasury Update Podcast. D’Alessandro is EVP and CFO at Hospitality Ventures Management Group (HVMG), which owns and operates hotels across the country. They discussed various impacts and ways the hospitality industry is working to survive the setbacks and challenges of this era.
Below, we’ll go over a few of the things D’Alessandro says they’re focusing on right now as they look to weather the storm and recover.
Enlisting Help to Ensure That Difficult Tasks Are Done Well
“The budgeted occupancy was 74%. Our actual occupancy was 9%,” D’Alessandro said, quoting the numbers from earlier in the week of the podcast recording in order to put into perspective the hit to HVMG’s hotels’ revenue. “It’s a pretty huge reduction. But it wasn’t just our occupancy that took a hit. It’s also the average daily rate – so what people are paying our hotels. Our portfolio average on Monday was $105. Last year it was $131. So obviously, big impact to the financials when both your average price and your occupancy are down. It’s a double-whammy.”
In light of such a severe nosedive of revenue and no certainty for when business would return to normal, hotels have had no choice but to take drastic measures. Protecting the investment and the investors had to come first, but it was important to decision-makers that what had to be done was done as well as possible in a way that protected not only the investors, but associates and guests as well.
Perhaps the largest example of this was HVMG’s approach to layoffs. While massive cuts and furloughs were, unfortunately, unavoidable, it was important to leadership that everything be done appropriately and everyone involved be protected. With hotels in fourteen states, they realized it would be complicated to act in accordance with every state’s different employment laws and to handle the process in a way that best protected all involved.
To make sure that nothing fell through the cracks and that all priorities were upheld, the company enlisted the help of attorneys with expertise in employment law. (See also the last point in this post, which will show another way in which HVMG sought to uphold the importance of their associates who had been let go.)
Additionally, competitors within the hospitality industry have been joining forces and looking to each other for guidance during the crisis. Hotel management companies’ CEOs, all running competing companies, have been discussing the future and best practices together. HVMG is also a part of a revenue committee formed from participants across the industry who are collaborating to try and find ways to leverage potential guests without endangering the asset. For example, in some areas, there is the possibility of overwhelmed hospitals using hotels for extra rooms, and while this is an exciting idea, hotels must find the best way to go about it to avoid problems.
D’Alessandro notes that there are tremendous threats right now, not simply to individual hotels, but to the hospitality industry as a whole. Seeing this, these competitors are banding together to keep their industry alive.
With so few guests and so many layoffs, D’Alessandro says, “Our hotels are down to bare bones… Our general managers, our directors of sales, our controllers are actually playing the part of housekeeper, they’re playing the part of front desk agent, they’re playing the part of engineer, and so forth. So our associates have really stepped up in this time and are working, you know – fifty, sixty hours a week to make sure that the rooms are cleaned.”
Despite the lack of guests, the cleaning is more time-consuming due to the added measures taken to keep guests and associates safe during the virus, with occupancy of the same room spaced out to 48 hours and double- or triple-cleanings between guests.
“Communication is key all the time, but especially in terms of when you’re asking your associates to go above and beyond – you have to show gratitude.” HVMG is holding brief, 10-15 minute daily meetings on the corporate side and hosting webinars every other week for their hotels. They are encouraging all the hotel general managers to turn on video during these webinars. “Everybody is under a lot of stress, both professionally and personally,” and D’Alessandro notes that it’s vital to be able to see expressions and listen carefully for tone in order to make sure everyone’s okay.
Prioritizing the Mom-and-Pop Vendors
“Everyone will eventually get paid. It’s just a matter of when,” D’Alessandro explained. When faced with the non-ideal task of deciding who gets paid first and who must wait, HVMG’s hotels are typically prioritizing paying the local vendors first. Local, mom-and-pop businesses almost always have fewer resources and less cash availability to fall back on than the larger, national corporations the hotels also owe.
While delaying any payments is not ideal, since it is necessary in this crisis, it’s wise to take a circumspect view of helping everyone get through the crisis together, which in this case means protecting the most vulnerable suppliers first.
Preparing for the Light at the Indeterminate End of the Tunnel
While some hotels have already closed, HVMG is encouraging their hotels to stay open if possible. Given the nuances and various unknowns of the pandemic’s progression from here on out, it’s impossible to predict when the rebound will occur. That said, however, the return to normalcy will inevitably be slow and not all at once. For example, the food and beverage side of the hotel business, which felt the force of the pandemic most rapidly, will also take much longer to reopen than the lodging side. Ultimately, it is estimated that it will take until late 2021 or even 2022 before hotels return to 2019 levels of occupancy and rates.
On a hopeful note, however, around 50% of groups and conferences who cancelled spring hotel reservations have rescheduled for fall. This shows positivity amongst customers that before too much longer, they expect to be returning to hotels. In the meantime, HVMG has used their time well by developing a playbook for reopening, with critical path items and if-then scenarios.
Reaching out to the Struggling
The one bright spot in the midst of this dark time has been the way it has brought out kindness and cooperation from all corners of humanity. Within the hospitality industry, people are working together to help each other get through this difficult time, as evidenced by a recent HVMG initiative.
With so many layoffs in so short a time, many states have been unable to meet all unemployment claims, leaving some of the newly unemployed in deep financial straits. Seeing that some of the associates HVMG’s hotels had been forced to lay off had been unable to collect unemployment and were struggling to pay bills and afford groceries, staff members organized a GoFundMe to support them.
The fund’s original goal of $25,000 was met and exceeded within three days. Not only did many current associates donate to the fund, but some of those who had been laid off but were able to collect unemployment or were otherwise financially stable contributed as well.
Hospitality, it seems, is taking COVID-19 and its threats to the industry on the chin. While layoffs no one wanted have been necessary, and the thinly stretched resources have forced hotels to make difficult choices regarding who gets paid on time and who doesn’t, the approach D’Alessandro outlines and the generous attitudes she describes show a consistent theme: cooperation and a thoughtful concern that everyone get through this crisis together.