By Mark D. Podgainy
U.S. Hotels have been on a roller coaster ride for the last 18 months, from the heights of 2019 and early 2020 RevPar performance, to the depths of Covid-19 lockdowns, and on to the “Great Reopening” and the Omicron variant. Though we are living in a rapidly changing environment, there are some issues and trends that are likely to be with us for the-near-to-mid future that owners, operators, investors and lenders should be aware of.
- Supply chain issues. Supply chain issues are causing shortages and higher prices for everything from guest supplies and food and beverage items to FF&E and repair and maintenance supplies, and are not going away any time soon. These issues will continue well into 2022 and possibly beyond, so securing alternative sources of supply, identifying product substitutes and planning for higher costs are musts.
- Forecasting the P&L and cash flow will continue to be tricky. the uncertainties emanating from COVID-19 have made planning and budgeting difficult but have also shown us that being prepared for various scenarios (e.g., worst-case resurgence, best-case return of business travel) and communicating these scenarios in the form of financial forecasts to owners and lenders is extremely important. When will business travel come back in a meaningful way? When will foreign tourists return? What effect will the Omicron variant have? In general, demand will still be difficult to gauge with travelers booking rooms much closer to their reservation dates than they’ve done historically. Operators must prepare projections with multiple scenarios in mind so that they can quickly adjust to contingencies.
- Labor shortages, and higher labor costs, will persist. The hospitality industry, like many, has experienced a shortage of workers as the economy has reopened due to a number of factors, such as extended unemployment, changing careers, choosing to work from home, lower immigration levels, and moving to a new location. In addition, employees who are working in understaffed environments are subject to burnout and quitting. In this ultra-competitive hiring environment, operators will need to entice employees by providing a welcoming and safe working environment, a career path, managerial support and competitive pay. Labor needs can be mitigated by utilizing technology. Further, training employees across multiple roles can lead to better flexibility and allows hotels to run leaner — which is especially important when it’s not always possible to fill every open job.
- No-touch technology – the Covid-19 pandemic has accelerated both the need for and deployment of socially distant, no-touch software and hardware, including check-in, dining, and guest room applications. Smart-phone apps and Amazon’s Alexa applications provide convenience, familiarity and a safer experience.
- Utilization of under-used or excess space – hotels will continue to look for creative ways to use their spaces, including renting space to ghost kitchens, creating co-working spaces, and making outdoor spaces available to guests for dining, relaxing and other activities to both maximize revenues and make guests fee safe.
- Importance of 13-week cash flows –The 13-week cash flow forecast has been a very useful tool in managing liquidity over the last 20+ months and will continue to be used as we move toward a more normal operating environment. Reviewing the variance to forecast on a weekly basis can help operators improve their forecasting over time.
- Stricter guidelines for business travel – in an effort to ensure employee safety during the COVID-19 pandemic employers set strict guidelines for business travel. While guidelines have been loosening, they are likely to remain stricter than pre-COVID, particularly as employers look to technology to keep travel costs down. While business travel is slowly returning, employers’ guidelines are likely to keep business travel at lower levels for an extended period of time.
- Reductions in stayover cleaning – concern with employee and guest health was the primary driver of the reduction or elimination of stayover cleaning, but it is here to stay for many properties, now driven by labor shortages. Opt-in policies are common and growing, with a significant, positive impact on the cost structure.
- Remote work – it remains to be seen if/when employees return to their traditional offices as employers sort through policies related to remote work and consider hybrid approaches. In the interim, the lower census of employees in the office presents challenges (e.g., fewer out-of-towners visiting offices, loss of local food beverage business, etc.) as well as opportunities (e.g., increase in internal off-site meetings) that will require operator creativity.
- Return to “business as usual” for flagged properties – though franchisors relaxed certain requirements during the pandemic, (including those related to food and beverage, property improvement plans (PIPs), housekeeping and FF&E reserve contributions) and allowed owners to use of FF&E reserves to support cash flow, owners and operators should expect a return to pre-pandemic operating procedures in 2022, which will impact cash flow, capital requirements and staffing needs even though most markets will not have fully recovered.
As the Great Reopening matures we are likely to see additional issues and trends surfacing, giving us a better sense of what the “New Normal” will be like.