Covid-19 and the Hospitality Sector: Who Will Pay for all the New Hygiene and Safety Standards?
As airlines, hotels and restaurants try to figure out what the ‘new' or ‘next' normal will look like, they will also have to consider who pays for any new cleaning and hygiene standards.
Budget airline Ryanair has already pushed back on the notion of taking out the middle seats, saying that type of move would make its business unviable. For its part, US airline United has said that passengers will be able to get refunds if flights are more than 70 percent full.
On the plus side, modern commercial aircraft are fitted with High-Efficiency Particle Filters (HEPA) which, according to a briefing paper by the International Air Transport Association (IATA), are similar in performance to filters used in hospital operating theatres and industrial clean rooms, as they are very effective at trapping particles as small as bacteria and viruses.
The possibility of using HEPA filters in the hotel industry was raised during a recent HoCoSo forum by HoCoSo chairman Jonathan Humphries, but the verdict was they would be too expensive and, given that hotels are not enclosed spaces unlike planes and operating rooms, they would be unlikely to be effective.
James Fry, Managing Director of JJF Hospitality, said he has explored improving air quality with a firm called AirLabs, which provides ‘clean air solutions' to manage indoor and outdoor air quality. Filters which are able to "take out the particles associated with the virus, are going to be of greater importance to the consumer," Fry said. "People will actively look for hospitality spaces that offer the general benefits of cleaner air and a safer environment, so this is going to be very important going forwards."
Cost will be a major factor though as to whether hotels do begin installing air filters. "We're watching the world of extraordinary creep of cost at a time when nobody's going to create revenue," said Sean Worker of T5 Strategies, who was previously CEO of BridgeStreet . "It's very easy for the brands. It's what the brands do as they provide information, manuals and processes - that's what the owner bought."
As HEPA filters are "extraordinarily expensive," Worker said there will be a "really big gap between what the consumer wants and the owner can afford, what the brands want to promote and what the owners can afford, and what the banks want and what the owner can afford."
"Whether it's restaurants, hotels or car dealerships, the owners are the ones getting disproportionately hammered by this." There will be significant costs in just re-opening hotel buildings, he said, "with cash flying out the door." It will not be easy, he added, to just add technology or infrastructure.
John Wagner , co-founder of Cycas Hospitality , which manages and owns hotels, questioned the sustainability of new hygiene and cleanliness requirements, which he believes, "changes the economic model of how a hospitality business works."
"If we've got to put everybody in PPE (personal protective equipment) and clean the lift every time somebody goes in it, how many lifts have to be built if you have only two people in it at a time? It just can't work. The whole industry would collapse and that's not going happen either." Compromises will have to be made, Wagner said, and although it may be ‘morbid' to consider the possibility, "a number of our competitive operators, hotels and smaller hotels, won't reopen - or they'll reopen and won't be able to sustain their businesses." If the economic model is unsustainable, new developments will dry up. That may mean less supply, but for those hotels which do reopen, profit margins will be "exceptionally difficult for the next year. The ability to turn a profit when running a hospitality business will be quite a challenge."
As for the additional costs of cleaning and procuring operating supplies, Worker said that even installing plexiglass would be expensive. "That's an additional and immediate cost for the owners. I appreciate what a lot of the brands are doing, but you wonder how many of the individual owners can survive being within a brand, given the demands that may be placed upon them, courtesy of the liability perception by a brand."
Wagner told the online forum that his hotel group was following the lead of the brands. " IHG is probably the most aggressive, the most on top of it. It has done a really remarkable job so far, coming out with extensive, detailed, and very thorough guidelines."
"I thought I was in the hospitality business," Wagner said, "but now I'm in the cleaning business and I just don't see how it can last. Some of the things they're asking to be done are just not sustainable as they make the business unviable. The cleaning regime, it's like an operating theatre in a hospital. It can never be that sanitised. We can't live as humans in that kind of isolated environment, certainly not in a hotel, as strangers are coming in all the time with all sorts of maladies. That's always been the case and we've survived it so far. If ever we're allowed to have common sense again, we'll get back to some sort of normalcy."
"You have to question the brands' motivation for doing this," said Humphries, adding there are two aspects: consumer perception; and the liability issue, with brands concerned about "the threat of being sued." Many independent, non-branded hotels - and they account for around 70 percent of hotels in Europe - are likely to adhere to the guidelines issued by the World Health Organisation , Humphries said.
"So you've got a minimum standard that the consumer's probably okay with, and you'll have this (more comprehensive) standard, similar to fire and safety standards imposed by the brands over the years. The question is, does that create enough of a price premium to justify those standards?"
"Somebody's got to pay for it," Worker said. "I haven't heard anybody (especially owners) say they're flush with cash and are ready to throw money at it" to provide HEPA filters on check-in or whatever.
The airline industry has been transparent about costs such as landing fees and airport taxes, Humphries said. "Maybe that's the way we'll end up going as an industry, with a transparent cleaning fee added on top." This has, after all, already been put into practice by Airbnb .
Hotel advisor Alphy Johnson commented that before asking people to pay a sanitation or hygiene fee, ‘we need to make sure it's proven to be effective. You may have to leave the room empty for two days before someone checks in and have this cleaning process. Does it work? I haven't seen anyone has tested that."
The discussion quickly reverted to who will pay for the additional cleaning and operating supplies.
"Why should hotel owners absorb this too? Every time there's a problem, the instruction goes back to the hotel owners, do this, do that," Worker said. As for the brands and operators, they will go to their customers and "tell them that you've done it."
"There's not a snowball's chance in hell that the brands are going to contribute anything," Wagner quipped. "If anything, they're going to ask for more because they're hurting too."
Humphries pointed out that there are three major stakeholders - customers, operators, and owners - plus perhaps a fourth, the government. "If someone gets Covid, it doesn't just impact the hotel and owners (unlike in an isolated case of food poisoning), it impacts the government, and possibly society, because they've got to foot the bill. This has a much wider spread so it's unfair that the cost should be borne by the owners of the business. To be fair, the cost should be borne by all four stakeholder groups."
"If there's a vaccine that comes in, are we going to resort to type in 2-3 years' time and the new hygiene measures are maybe going to fall away?" Fry wondered. "I believe the brands that adapt to that now in the short term could potentially attract a premium. It's all about costs versus rewards. If it costs an extra 20 pounds to clean a room but you'll have a customer coming in and paying an extra 25 pounds, then it's worth doing and you're obviously building strong brand representation." This may be an opportunity for smaller brands who are not so indebted to focus on growth, he said, and, as in the 2008 crisis, "we'll see really interesting brands coming out in European and American spaces, looking to change the hotel market in three to four years' time."
The winners in the short term, Worker added, will the ‘super economy' and ‘super luxury' segments. "Economy is probably going to do great because their footprint is so much easier to clean and tolerance levels are different. You're not dealing with corridors and infrastructure like other hotels would be. If you're in the high end and normally stay at a luxury hotel, you'll still stay there even if it charges an extra hundred dollars a night "to clean the hotel to the standard you'd expect."
"The fight is in the middle," he said, "and it's the same with the airlines and the cruise ships. The middle is a mess and probably 80 percent of hotels are in the middle."
Katharine Le Quesne , managing director of HoCoSo , is somewhat more sanguine about the prospects for the hospitality sector. "We're social animals and we look for leisure and entertainment. At the end of this, when we're allowed to get out, we want to get out and do something more meaningful. That hasn't changed. I also think, by nature, although some of us are more risk averse, we're still a species that is a little bit risk taking and, therefore, we'll find an equilibrium somewhere, where we go ‘I've minimised the risk as best I can.'"
To help hospitality plan for Covid-19 operations in hospitality, the European Hotel, Restaurant and Cafe Industry and the European Federation of Food, Agriculture and Tourism Trade Unions have issued a press release regarding hygiene measures recommendations while the COVID-19 containment is getting lifted. Read the full press release here.
Also, the World Health Organization has released findings of a study on operational considerations for COVID-19 management in the accommodation sector. Read the full article here.
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 ; Chris Mumford , founder of Cervus Leadership Consulting; John Wagner , Co-Founder, Cycas Hospitality ; Sean Worker , Managing Director and Principal, T5 Strategies ; James Fry , Managing Director, JJF Hospitality; and Alan O'Dea , Managing Director at Campbell Gray Hotels .
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 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.