COVID-19 turned the hotel industry upside down, but it won’t change what people want

COVID-19 turned the hotel industry upside down, but it won’t change what people want

23 Aug    Finance News

The COVID-19 pandemic shook the lodging industry particularly hard, and turned many hotel businesses upside down. But there’s a fundamental reason to believe that, like a shaken snow globe, the post-COVID-19 landscape might look very different but business will eventually be just as good, and could be even better than before the pandemic: People are, and will always be, social animals.

And whether they prefer a big-city hotel run by a global chain, a lodge at a ski resort, or a quiet bed-and-breakfast, people will always want to “get away.”

While what people want won’t change, the pandemic will certainly permanently change how they get it. The businesses that are willing to adapt and are able to act quickly, and willing reach out to others for help if necessary, can eventually heal and might even come back a little stronger.

Hotels will first have to focus on cleanliness and safety certifications, and technology is going to be a very big part of how that is achieved, said Gilda Perez-Alvarado, Americas Chief Executive at JLL Hotels and Hospitality Group.

“Pre-COVID, all these tech features were offensive in nature,” Perez-Alvarado said. “They’re defensive now. You better get on it.”

As data from travel advertising technology company Koddi shows, safety matters:


But eventually, that might change, as people will likely start refocusing on convenience, if they haven’t already. Basically, what COVID-19 did was remind those in the hotel business of a fundamental business principle: Listen to the customer.

“Making the guest feel comfortable, no matter the situation, is and always will be the aim of a hotel and its staff,” said Terry King, a regional director at technology, security and investigative consulting firm Guidepost Solutions.

The knockdown punch

It’s easy to quantify how hard the pandemic hit the largest hotel chains, as S&P 500 index SPX, +0.34% components like Hilton Worldwide Holdings Inc. HLT, +2.64% and Marriott International Inc. MAR, +1.33% have to publicly disclose quarterly results.

For Hilton, which offers nearly a million rooms in more than 6,200 properties across 118 countries, second-quarter revenue per available room (RevPAR), a key financial metric for the hotel industry, tumbled 81% from the same period a year ago, as the company swung to a net loss of $430 million from net income of $260 million.

As travel restrictions and lockdown measures spread across the globe, Hilton was forced to play defense, by temporarily closing hotels, furloughing employees, cutting salaries and other costs, and borrowing money to provide some financial breathing room.

“Never in Hilton’s 101-year history has our industry faced a global crisis that brings travel to a virtual standstill,” Chief Executive Christopher Nassetta said in June.

The pandemic may have hit other places a little differently, but it hurt just as much, if not more.

Jeff Bay, managing director of HayMax Capital LLC’s HayMax Hotels, which operates four boutique hotels in Aspen, Colo. and Sun Valley, Idaho, said at first the pandemic seemed like something that would affect the big cities, and smaller cities might be spared. But then ski resorts were required to cease operations.

“All of a sudden, it became glaringly obvious that we would be impacted,” Bay told MarketWatch. “Our primary driver of business had been removed, and our world as we knew it had been turned completely upside down.”

The pandemic’s punch also reached those in more remote locations. At the 257-year-old Historic Smithton Inn, with seven rooms and a guesthouse in Ephrata, Penn., in Pennsylvania Dutch Country, the old-school way of doing business stopped, and owner/innkeeper Rebecca Gallagher looked for something new to survive.

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“Money was coming in one way before, I realized it can’t come in that way anymore,” Gallagher said. “I had to duck and roll.”

How a 257-year-old B&B ducked and rolled

Before Gallagher could figure out how to survive the beating COVID-19 was giving to not just her business but the entire community, her first thought was preservation. In other words, she had to duck.

“If you can’t make money, you have to save money,” Gallagher said. For example, she mows the lawn herself now, and she’s also doing the payroll.

At the same time, Gallagher said she applied for every grant, aid and loan available to small businesses, so she could roll with any opportunity that presented itself. She was approved for a Small Business Administration disaster loan.

“Every crisis has an opportunity, if you’re able to see it when it happens,” Gallagher said. “Try to keep your eyes open…how am I going to pivot?”

And then the opportunity came. Pennsylvania shut down liquor stores, but that didn’t mean alcoholic beverages couldn’t still be sold. The Historic Smithton Inn had a wine bar, but there was never any reason or method to sell the wine curbside or to go.

With help from point-of-sale technology already in use, she was able to create e-commerce sites within hours of hearing that liquor stores were closed, to sell not just her wine but also branded sheets, candles and soaps, figuring people may want a piece of the vacation they could no longer take.

“Even though this terrible thing happened, there’s a sense of hope that 20 years from now, something good will have come of it.”

— Rebecca Gallagher, owner/innkeeper of Historic Smithton Inn

Although revenue was still much less than pre-pandemic levels, Gallagher said it was “psychologically awesome” because by acting quickly, she was able to create new ways to make money.

“We were still making less money than before the shutdown, but I was busy,” Gallagher said. “It helped my stomach from being queasy. I felt like I was doing something.”

As lockdown measures started to ease, she saw another opportunity, but also a problem. She saw evidence that a “work-cation” trend was emerging, but given that the walls of the inn were 18 inches thick, her Wi-Fi wasn’t robust enough for coverage in all rooms.

Gallagher used the money from the SBA disaster loan to hardwire every room to the internet and invest in larger, smart TVs. She also bought smaller individual coffee pots for each table in the dining area, since the bigger, public coffee urn could no longer be used. And she bought plate covers and trays, so she could deliver food to rooms for people who wanted to remain socially distanced.

She even had two electric-vehicle charges installed, one an 80-amp Tesla TSLA, +2.40% Supercharger and the other a 32-amp Clipper Creek universal charger, free of charge to guests.

Historic Smithton Inn

Although the e-commerce business slowed as lockdown measures eased, different revenue streams started to flow, ones that can be expected to last a lot longer. So she’s starting to spend on marketing again.

Normally, Gallagher said her inn appealed to an older demographic, to people in their 50s, 60s and 70s. “Now, they are much younger than they used to be.”

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And before, the typical guest would travel from relatively far distances and would only stay for two nights. “Now, we’re seeing people not from as far away, but are staying longer,” Gallagher said.

With the new room upgrades, she can consider marketing the rooms for rent to guests wanting to work for the day, but not stay the night.

But will all the changes that have happened so far, she could see that one important thing hasn’t changed.

“People want to be safe and social distance, but they still want to be around people,” Gallagher said. “I have not had anyone take me up on delivering food to their rooms.”

No resort is an island

HayMax Hotels’s Bay found some different ways to deal with some different issues, while focusing on the same principles: Respond quickly to what the customer wants.

“Because of the situation, the consumer’s voice is louder and easier to hear, and we’re forced to react to it,” Bay said.

First was to help guests feel more safe and secure when they entered the hotels, by making the check-in process more efficient. HayMax quickly invested in technology so door locks could accept digital keys.

“It was technology we kicked the tires on about a year ago,” Bay said. “It was hugely accelerated because of COVID-19.”

There was an unexpected benefit: Something that was implemented for safety reasons was, all of a sudden, a nice convenience that guests appreciated.

“The public wanted many of these things for many years, but the hotel industry was slow to adopt them,” he said. “The old days of checking in at the front desk and ringing the bell are kind of nostalgic.”

But as safety protocols helped ease some fears of infection, the guests’ worries started to shift. People were becoming more concerned about going to a place where they felt the community as a whole was practicing safety protocols rather than individual hotels, Bay said.

And that helped bring his focus back to the fact that people go to resort hotels for different reasons than why they go to a bed-and-breakfast, or a hotel in a big city.

“People don’t come to Aspen to stay at our lodge,” Bay said. “It’s a foundation for people to enjoy the area.”

The good thing was, other area businesses quickly refocused on the same thing. So rather than adopt an “island mentality,” Bay said the community came together to set up a lodging task force.

“There was a great sense of cooperation between the retail community, the lodging community and the local government,” Bay said. The thought being: “If we can’t get people to come back to Aspen as a whole, none of us will be successful.”

It worked, because Bay said the hotels were seeing an exponential increase in demand, with people wanting to stay longer than originally planned. “We’re seeing a lot of ‘within-stay’ extensions,” Bay said. “We’re seeing people who book for two nights end up staying for four.”

Hilton gets back to basics

Meanwhile, for a hotel chain operating in more than 100 countries, the pandemic was going to affect Hilton in very different ways than it affected a ski lodge or bed-and-breakfast. But there’s one thing that’s the same — it is still about people.

“More than ever, it’s about focusing on the basics,” said Phil Cordell, global head of lifestyle brands/new brand development at Hilton Worldwide Holdings Inc., told MarketWatch. “What does the guest want?”

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For Hilton, the technology others have recently invested in has been available for several years Members of the chain’s loyalty program already have the ability to check in digitally, access to digital keys and can choose the room they want to stay in.

So Hilton started focusing on making sure customers could trust the brand, and not just each individual hotel, to be clean and safe. So the company announced working relationships with other trusted brands like Reckitt Benckiser Group PLC’s RBGLY, -1.01% RB, -0.15% Lysol and Dettol, and with the Mayo Clinic.

“Cleanliness has always been implied and behind the scenes, but not always advertised and celebrated,” Cordell said.

Next is to think of new ways to demonstrate, as the traditional methods may no longer work in the current environment, given that a global hotel brand’s bread and butter — business travel and events — may never return to pre-pandemic levels with the proliferation of videoconferencing and growth in working from home.

Cordell said that could mean providing hybrid work environments, leaning into the local community and staycation customers.

“Necessity is the mother of invention,” Cordell said. “[W]hat happens in the room might be different. Rooms may not just be for sleeping.”

Hilton may also have to reconsider how their loyalty programs are used. Len Covello, chief technology at loyalty rewards program-technology company Engage People, said that when the pandemic first hit, a lot of companies went on the defensive, and let redemption options disappear. Now, they’re moving into customer-acquisition mode again.

“They’re going to have to innovate their programs to attract customers,” Covello said. “They’re removing restructuring, removing cancellations.”

COVID-19 was a kick in the butt

As terrible has COVID-19 has been for the hotel industry, the ultimate effect will be to speed up the evolutionary process. In many cases, the cure for COVID-19 was already there, hotels just needed something to accelerate its adoption.

“There are things coming into place now that were talked about at conferences four and five years ago,” said Dr. John Niser, director of the International School of Hospitality and Tourism at Fairleigh Dickinson University. “The has just kicked them in the butt, basically.”

It’s like the work-from-home trend, which was emerging before COVID-19. Many companies were reluctant to let the trend grow, however, without first knowing how it would affect productivity. But after several productive months of remote work, the hotel industry saw a huge opportunity, now and post-COVID.

“We’ve witnessed a surge of ‘Work From Hotel’ bookings — from 12 percent pre-pandemic, to over 30 percent of our bookings now,” said Yannis Moati, CEO of hotel booking platform HotelsByDay. “We see a really massive opportunity for hotels to leverage their core competency — providing memorable experiences in spaces that adhere to safety and cleanliness standards — into a larger addressable market than ever before.”

The ability to see these trends as they emerge, and being nimble and bold enough to move quickly to ride that trend, won’t only provide hotels with a path to survival, but to emerge stronger than they were pre-pandemic.

“Even though this terrible thing happened, there’s a sense of hope that 20 years from now, something good will have come of it,” Historic Smithton Inn’s Gallagher said.

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