Retired hotelier Horst Schulze, Mit Shah, Harris Rosen and OYO’s Ritesh Agarwal give advice and perspective on the crisis facing the hotel industry.
REPORT FROM THE U.S.—In times of crisis, leaders are tested by difficult decisions, and right now, whether those leaders pass or fail will have big implications on the future of the entire hotel industry.
In a series of three video chats, the Asian American Hotel Owners Association’s 2020 virtual conference sought the advice and perspective of industry leaders, one retired.
Horst Schulze, who founded the Ritz-Carlton brand and The Capella Hotel Group, which he sold about a year ago, told Noble Investment Group CEO Mit Shah that he felt lucky to have left the industry when he did, before the onset of the COVID-19 crisis.
“But in my heart, I’m a hotelier … and I think about that all the time, what I would do, how I would handle (this situation),” he said.
Shah put the challenge into context for his friend and former colleague.
“When occupancy drops as dramatically as it did, starting towards the end of March into April … You’re keeping as many people on staff as possible. The (federal Paycheck Protection Program) loans helped; forbearance helped,” Shah said. “But we’re about four months into this crisis and seemingly, it’s not getting better. You have a lot of owners that are out there, they’re dealing with the magnitude of these issues, and in a very difficult way.”
In the example Shah offered, an owner with a 150-room property faces “basically 25% occupancy at $100 to break even at the gross operating profit; it’s between 50% and 60%, depending on how much leverage that you have, at $100 to break even after debt service.”
“A 150-room, select-service hotel made $100,000 of free cash flow a month last year. Well this year, it’s been losing $100,000 a month since a pandemic,” he said. “So there’s all this that is immediate. You care about your people, you care about the identity that you have as a company, as human beings … but now you’re in a tenuous state, where you don’t have any control over whether business is going to come back to where you could just break even.”
What can’t change
Schulze said in these “very unusual circumstances,” leaders must remember their vision and purpose.
“When I started Capella, I said, ‘I’m going to create the world’s greatest service organization.’ With Ritz-Carlton, I set out to create the world’s finest hotel company. That’s a vision, a purpose. I hire people to join me in that purpose,” he said.
“Now that you’re in this situation, your vision cannot change,” Schulze said. “Whatever that vision was, a leader does not give up on a vision. The other thing a leader does not give up on is values. But the priorities change. You have to be sincere about the circumstances, and with that sincerity changes priorities.”
A hotelier’s four top priorities should be: “Do the absolute best for investors, guests, employees and society,” Schulze said.
“Right now, the priority is the hotel, the company, must survive, because without that none of the other three have anything,” he said. “Another priority is how do I keep connected to customers and suppliers and let them know that I care about them? Once we get through this, they should think more highly of me than before.”
With employees, the calculation can seem harsh.
“Make sure you don’t lose your best employees … (and) get rid of the rest of them,” Schulze said. “Sorry, if you don’t, you won’t have a hotel. You’ll have nothing for anybody. Owners will understand it. Managers will accept it; they have a fiduciary responsibility to make the company successful and make sure it survives.
“This is painful. I cried letting people go. I was tough but I was fair. Sometimes that’s necessary.”
‘Do your best’
Harris Rosen, president and CEO of Orlando, Florida-based Rosen Hotels & Resorts, said hotel leaders should put their employees first.
He said he decided early into the crisis to continue paying a percentage of every associate’s wages through temporary layoffs.
“We didn’t realize things would go on as long as they have, but we wanted to invest in our own people, and we have,” he said, adding that the company, being debt-free, is fortunate to be able to do that.
“Invest in your own folks and let them know you love them, how much you admire and need them. They will appreciate it forever.”
Rosen recommended leaders reach out to their employees to offer emotional support, in addition to financial.
“Call your associates, meet with them, have lunch with them on occasion,” he said. “They know that things are so different now; they can’t expect you to do everything you’d like to do, so do the best you can, and I think ultimately everything’s going to turn out OK. It’s not easy; but keep a positive attitude.”
Rosen said in his “little company’s 46 years, I must confess this has been the worst time by far.”
“It’s been an awful experience. We’ve tried our beset, but we can’t control what is going on, and that’s a great tragedy,” he said. “My advice is just do the best you can. There isn’t much advice I can offer, because this has never happened to us before. What we can do is we can take a deep breath and do the best we can under theses circumstances, and hope and pray that within a reasonable amount of time, there will be a vaccine and things will get better.”
In the meantime, hoteliers face the difficult decision of whether to keep hotels open or close them.
“This is not the end for any of us hopefully,” Rosen said. “We’ll all survive. It will be a struggle. … Let’s assume that in the next six months to a year, things get better, and within a couple of years, we’re back to normal. My advice is to pretend as though this never happened. There’s a likelihood it will never again happen in our lifetime. So play for the future, for additional rooms, a new property, whatever it is you’re hoping for. Don’t let this interfere.”
Ritesh Agarwal, the 26-year-old founder and CEO of Indian budget chain Oyo Hotels & Homes, said he believes “that crisis brings clarity.”
In Oyo’s case, it has prompted a focus on “getting back to basics and innovating.”
“The second thing we have learned is good karma brings good business eventually,” he said, noting that an initiative to offer free rooms to front-line workers resulted in one of the biggest bumps in business the company has ever had “even after spending a lot of capital on marketing.”
“We all have to work together,” Agarwal said. “We have to get our shoulders together to make sure that in order to see through this crisis, we innovate in terms of using technology to bring more demand—whatever exists out there—to serve customers best. If we do this, we will come out stronger.”
Agarwal acknowledged “there were absolutely missteps” in Oyo’s entrance into the U.S. market.
“The biggest lesson we learned is that whenever there are challenges, we go back to basics, meeting partners and making progress. A lot of people have met me during the course of my personal calls and trips across the United States. As I meet partners, I constantly learn more improvements,” he said.
“We improved our revenue-management program through which we continue to deliver better (revenue per available room). Our RevPARs have reached, even during the time of COVID, 92% of the pre-COVID levels. Our partners were still not fully satisfied. They wanted further control on pricing. So we gave them an opportunity by means of pricing modification on their mobile system, through which they can increase prices. (One-third) of our partners use it now,” he said.
“Our brand and company is responsible to constantly listen to our partners, and then (have a) quick response to ensure that we bring innovative solutions to our partners so we bring value for them and to our customers.”