Coronavirus and the Hotel Industry: an Existential Threat Urgently Requiring Concerted Collaboration and Action

Switzerland, Zurich. March 26, 2020

With the Covid-19 coronavirus spreading around the world, governments are battling to protect health care systems and limit the potential for social unrest by pumping billions of dollars, euros and other currencies into their economies. Businesses, including hotels, restaurants and bars are having to close their doors, with millions of employees told to stay at home and facing the prospect of mass lay-offs.

In the US, CEOs of the Hilton, Marriott and other major hotel chains have lobbied President Trump for urgent assistance but in Europe the silence has been deafening, with little or no coordinated action at a senior level. Given that the hotel industry is at the core of the travel and tourism sector, which accounts for around 10 percent of global GDP and some 320 million jobs, it is then "absolutely critical" that leading hoteliers make their voices heard.

"There needs to be a more coordinated response across the industry," says Jonathan Humphries, chairman of hospitality consultancy HoCoSo. "No-one's stepping up to take control. Collaboratively, they (hotel associations and other senior industry representatives) could be very powerful."

"Companies need to collaborate and we need a coordinated response from the industry across various jurisdictions."

Humphries was wrapping up an online forum which brought together hoteliers and hospitality sector experts to discuss the impact of the outbreak on the hotel industry.

The panel also explored best practice solutions but, as there is so much uncertainty right now, it is difficult for businesses to focus on anything but survival, with many listed companies unable even to provide any sort of earnings forecast. "Listed companies are saying ‘We'll tell you what we know today, but don't ask us to forecast where we shall be in three months' time.' We are all grappling with the fall out of extreme shocks to everything that drives our industry," said Katharine Le Quesne, HoCoSo's Managing Director.

"I don't think anything we've seen so far prepares us for this combination of factors," was the view of Jonathan Langston, Chairman of HotStats. "This is unlike anything before. I've never experienced hotel occupancy in single digits on such a widespread scale."

Leading hoteliers in the US are "truly, truly alarmed," Langston said. "On the one hand, there's a human element to what they're experiencing which is to lay off staff. As there's no revenue coming through the door, they have no option but to lay off swathes of staff. I don't see that being repaired quickly, aside from massive state intervention."

"On the other side, there's a massive credit issue, a credit crunch of sorts. Rents aren't going to be paid on leased priorities. The first priority is to pay people."

In Europe, he said, the hotel industry had done a "pretty poor job" of quantifying what it needed in terms of state intervention. "Airlines have done it in the UK with Virgin alone saying ‘we need 7.5 billion pounds to get through this.'"

"What does hearten me is to hear that two to three months down the line, China (which has been at the epicenter of the outbreak) is starting to see light at the end of the tunnel. That's our glimmer of hope."

Earlier in the online forum, Tao Zhou, the head of HAMA (Hospitality Asset Managers Association) China, outlined the impact of the virus on the hotel industry there. Occupancy rates had plummeted in January from 70 percent to eight percent within two weeks, with the F&B sector and tourism industry each experiencing losses of 65 billion euros over a seven-day period.

Unlike during the SARS outbreak in 2003, the market was already relatively soft. "So this makes the situation even worse and the hotel industry is really suffering right now."

Zhou, who is also general manager of Huatian International Management Co, said his and many hotels had formed alliances with food delivery company Meituan, China's equivalent of Groupon. "In one city, they have 10,000 delivery people so they take care of everything. Customers order food and hot dishes arrive at their doorstep within 30 minutes. It's very convenient."

"We maintained some F&B staff because, even when the hotel shut down, we still had some long-stay guests in-house, so we always had around 20-30 F&B staff around."

Businesses in China have been discouraged from laying off staff, he said. "Each company has some flexibility," with some reducing salaries for senior staff by 20-40 percent.

"Government support is very strong," in the form of tax holidays and exemption of local taxes. It has also provided subsidies for training staff, he said. "During these harder times, hotels and consultancies have delivered a lot of online training sessions. People have the time and want to hear industry voices to train and hone their skills."

As for the situation facing the industry now in China, he said 70 percent of hotels had started to re-open. "The majority of hotels are still very cautious, with temperatures taken and everyone still wearing masks. The number of affected people though is already stabilizing".

"Business is still slow however, with occupancy rates of 15 percent, so these are still very hard times."

Over in Europe, "there's a real, strong, genuine intent and desire to retain staff," said Chris Mumford, founder of Cervus Leadership Consulting. "The one thing we know is that, at some point, this will pass, business will come back and we'll need those people."

"What I'm seeing in terms of initiatives, the first step is everyone should take the leave they should be taking. Then, there's a recruitment freeze pretty much everywhere."

Marriott has already decided to furlough tens of thousands of people in the US. That means they have been put on unpaid leave but will still get health benefits paid for by the company.

Governments in Europe are also stepping in to support workers who have their salaries reduced by their employers. "So I would say that, where possible, people are trying their utmost to keep staff so they're there when things get better."

"The other thing is the speed of this," Mumford said. "Drawing on lessons from other crises (such as SARS or the global financial meltdown), you should act fast and not prevaricate." This may involve reducing hierarchy and bureaucracy internally, he added, "to be able to execute on decisions and get things moving without too much delay."

Companies with a presence in Asia may have the advantage of being two months or so ahead of the curve because of their experience in the region. "Everyone is in full crisis management mode, panic stations if you like, but at some point we'll get adjusted to this new normalcy and I hope people start using the time wisely in terms of online training and building up their talent pipelines by getting to know their fellow hoteliers."

Although most companies are struggling to deal with the impact of the immediate crisis, there may be opportunity to develop separate teams to focus on the longer term to map out expansion plans. Mumford also cites the example of banks with separate deal teams in different locations "so if, logistically, one team goes down, because of a virus or whatever, you've got the other team to take over."

"We may see lighter, more decentralised management structures coming out of this to help people respond in a more streamlined way in future."

Alphy Johnson, president of International Hospitality Advisor, outlined some of the lessons learned from previous crises he had experienced as a hotelier during the San Francisco earthquake in 1989 and terror attacks in the Middle East. "Preparations are key: how you can mitigate the challenges and look for opportunities."

Companies should be proactive in terms of communication and make sure that employees put their families first, he said. "If you're worrying about your family, then you're not focusing on your job." Hoteliers should prepare "for a V-shaped recovery" as was seen after the SARS crisis, although it might turn out to be U-shaped which would take longer, or, worse still, L-shaped ("as it means you never recover"). See TABLE 1 in the carousel below.

"We're fortunate in that we have an approximate idea this is not something that's going to last for years, but more probably months."

"Stay positive, especially if you're in a leadership position," is Johnson's advice. "Be a leader and be honest with the people you're communicating with."

For HoCoSo chairman Jonathan Humphries, it is critical that hoteliers and other business leaders avoid allowing the crisis - as serious as it is - from hi-jacking the long-term goals of their companies.

"The only hope is to plan for the future and that V-shaped recovery," he says, especially firms with strong balance sheets and cash reserves which will be well placed to weather the storm.

A message from the HoCoSo leadership team:

Like many of you, we have worked through numerous seismic events during our careers and we are total believers in the power of collective thinking in navigating uncertainty. At the start of this year, HoCoSo labelled 2020 as our Year of Community. We didn't realise then how important this ethos would be. As we watched from Europe as much of China's hotel market was shut down in a matter of weeks, we reflected on the Chinese character for crisis 危机, the literal translation of which is danger + opportunity. So we launched HoCoSo CONNECT, to focus on opportunity; to work on solutions; and to support each other. Our Weekly Forum series brings together a focused group of industry leaders to debate what is happening and to find solutions. We are motivated by a sense of community, responsibility and urgency.

Our huge appreciation to our roundtable of experts: Alphy Johnson, President, International Hospitality Advisor; Borivoj Vokrinek, Partner, Cushman & Wakefield; Chris Mumford, founder of Cervus Leadership Consulting; John Wagner, Co-Founder, Cycas Hospitality; Jonathan Langston, Chairman, HotStats; Tao Zhou, General Manager, Huatian International Hotel Management Company Limited.

To the hospitality industry, we offer freely our time to be a sounding-board to support your internal discussions, planning and communications; and to work on practical solutions together. If you are interested, we'd be very happy to get around a virtual table so please do get in touch. Jonathan Humphries, Katharine Le Quesne, Irene Zijlmans.

About the Author - Stuart Pallister

After working as a television journalist in Asia and Europe for nearly 20 years for mainly CNBC and Asia Business News, BBC Radio and TV, European Business News, and McKinsey, Stuart Pallister switched to digital content development at INSEAD business school and the National University of Singapore. He then headed the Academic Editorial Content at Ecole hôtelière de Lausanne and launched its knowledge platform Hospitality Insights by EHL.

Potential Recovery Scenario for the Hospitality Industry
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