Ranjit Batra, President – Hospitality, Panchshil Realty pens his view on the emerging new order in hospitality
It will be interesting to see how the relationship between the operators and their employees will pan out, with some operators choosing to seek pay-cuts from their employees, while some choosing to stand by them, making sure there are no pay-cuts and insisting that owners toe the line
The hotel industry will see a paradigm shift in the post-COVID-19 world. We will soon be referring to it in terms of BC and AC — Before COVID and After COVID. A lot of people compare the resilience of the hotel industry during the SARS epidemic and the 2018 financial crisis, and it eventually got back after a lag of a couple of years.
Most of them believe — taking cues from the fact that almost 85% of hotels in China have opened now — that it will see a V-shaped recovery. I think that is a pipe dream. SARS was an epidemic and affected only 26 countries.
COVID-19 is a pandemic and has already affected the entire world. Not a single country has escaped the wreck it is causing. China did not impose a lockdown on the entire country; it locked down, province by province.
In India, the entire country was placed under lockdown at a snap of the finger. This will have a significant impact on all the key stakeholders — owners, operators and customers. There will be some short-term impact and some long-term structural changes.
HVS India estimates hotel revenues in India to decline by anywhere between $8.5billion and $10 billion in 2020, not to mention the job losses. Let us take the impact on different stakeholders.
I believe that amongst all the stakeholders, the owners will be the most significantly affected. They are the ones carrying the most risk in this equation vis-à-vis the operators. Most of them are staring at significant equity erosion and bankruptcy. This is especially true for Indian owners who have leveraged
to the teeth.
Indian owners will be staring at a loss for 2020, with a glimmer of hope that 2021 at least sees them break even. Taking a cue from HVS estimate of revenue loss and assuming average NOP margins of 25% to 30%, the owners would be staring at a loss of NOP of almost $2.5 billion to $ 3 billion. The owners will also have to bear the opening cost, once the hotels are ready to open after the lockdown.
Operators have long maintained that their interest is aligned to that of owners as their fees are tied to revenues and net profits. However, it will be interesting to see whether the operators step up to the plate and ease the financial burden of the owners, especially when most of the owners are at their wit's end. The test of a relationship is always in hard times only.
I believe the operators should come forward and support the owners — relax brand standards, take a concession/waiver in fees till the operations turn significantly profitable, and stop reimbursable, besides fund owners on remarketing the hotels post the lockdown.
Most large brands have announced the pausing of the expiry of loyalty points and status extensions. However, while it is a good move to retain customer loyalty, why stop short at that? Why not fund the owners from the loyalty amounts collected over the years?
It will be interesting to see how the relationship between the operators and their employees will pan out, with some operators choosing to seek pay-cuts from their employees, while some choosing to stand by them, making sure there are no pay-cuts and insisting that owners toe the line. Also, once the hotels open, the most significant challenge will be getting the staff back, as most of the hotel staff has gone
back to their hometowns.
I always had the utmost respect for the front-line staff, including security. However, the way they are currently risking their lives and staying away from their families for days to ensure that the lights are still on at the hotels is truly commendable, and my respect of them is beyond words. They are the true superheroes of hospitality.
The increase in a web-based meeting on the likes of Zoom and CISCO WebEx, coupled with the shift towards work-from-home, will lead to business travel being curtailed to a large extent in the near future. Hotels, mainly dependent on business travellers, will require significant time before their occupancies see some traction. Usually, domestic leisure destinations should rebound first, with domestic travel restrictions being eased first.
However, this wouldn’t be a significant amount as disposable income available to customers would have been significantly reduced in 2020 with pay cuts and a weak stock market. I believe customers will gravitate towards hotel properties that provide minimal touchpoints — online check-ins, having better hygiene, robust disinfection programs such as disinfection tunnels at entry points. A new playbook will be required to run and market hotels.
Customers, I believe, will also care and respect the environment and will prefer hotels that give due consideration to the environment and have a smaller carbon footprint.
THE WAY FORWARD
The hotel industry, especially in India, has been seeing significant growth in the last couple of years. The rising tide lifts all boats, but as they say, only when the tide goes out you discover who has been swimming naked.
The future will belong to the owners with a stronger balance sheet and operators who stand by the owners. The customers will vote with their feet for hotels that they feel safe in and care about the environment. I think the entire industry will be going through the disinfection tunnels, with weak
ones being weeded out.