DISTRESSED SECTORS

Rooms available: how COVID-19 has impacted the hotel industry

The COVID-19 pandemic has caused an unprecedented level of disruption to the global hotel industry. A combination of local lockdowns and travel restrictions has resulted in many hotels having to close temporarily or operate at a fraction of their available capacity. As the crisis continues to evolve, it is still unclear what shape the industry will emerge in.

The hotel industry is used to dealing with disruption, but never on this scale. While previously only localised events like hurricanes could result in long-term closures, 2020 has seen a widespread drop-off in customers looking to stay in hotels. What makes this crisis so unique is how indiscriminate it is – every hotel business and every corner of the globe has been affected in some way. At the end of July occupancy rates are 60% in China, 48% in the US and 32% in Italy. And with concerns in Europe about new spikes and second waves, it is clear the crisis is far from over. So, what are the specific challenges the hotel industry is dealing with?

Liquidity 

The immediate impact has been a steep drop in revenue as business travellers and tourists live in lockdown or utilise video conferencing to meet clients. Adding to the problem is all of the uncertainty regarding the current situation. Hotel operators cannot currently say with confidence when travel restrictions will be lifted, and whether consumers will remain cautious for a period after. Also, social distancing may require hotels to offer fewer rooms for the foreseeable future. Recent research shows that with 10-foot-diameter spacing between tables, restaurants may only be able to generate 19% of the revenue they were pre-COVID.

Employment

Many operators have been able to reduce their labour costs by reducing hours or using government support options. This could create issues, however, as hotels begin to get more business. Is it likely that staff are going to be able to work reduced hours for a prolonged period of time? With fewer staff, there may also be more room for errors, oversights and below-standard service as remaining workers are stretched thin.

Debt and restructuring

Large numbers of hotel operators are looking to restructure their debts, which could create opportunities for private equity owners with large cash reserves. Being able to restructure requires being able to show that a hotel remains a viable business and is likely to continue running once travel and lockdown restrictions are lifted. There is also a range of government measures across the world aimed at providing assistance to struggling sectors, but it is unclear how long these will be available.

Preparing for life in the new normal

The pandemic may lead to a speeding up of the introduction of digital and remote services like mobile check-ins, and contribute to a shift in customer experience across the industry. What is clear though, is that it will be some time before the hotel industry returns to the way it was able to operate a year ago.

The hotel industry faces some stark choices in the coming months, as we all begin to navigate our way towards recovery. We can help you protect and restore value in your business, so that you are best placed to operate in the new normal.