As capital dithers, execs strategically prune costs
 
As capital dithers, execs strategically prune costs
01 DECEMBER 2020 10:05 AM

Some hoteliers have reported good business this summer from a combination of strategic pruning of costs while still retaining the guest experience. The next two quarters may prove tougher to maintain.

LONDON—The bottom line of hotel firms’ P&Ls might not be the failures this odd year of COVID-19 might suggest.

Speakers at the hybrid conference HOSPACE 2020 said a constant analysis of potential savings and a full review of the business model going forward are the routes to future profitability.

Robert Barnard, partner at hotel-industry advisory BDO, said one budget-chain executive told him it had not taken a single booking between lockdown in March and the end of May but still this year is on target to beat its earnings before interest, tax, depreciation and amortization target by 30% thanks to a busy summer.

That success could only have come about with judicious pruning, because the goal is not only survival but maintaining assets and guest experiences, panelists said.

Barnard’s colleague Mark Edwards, audit partner at BDO, said “stripping out costs has been one of the success stories of the pandemic, and hotels are able to break even at far lower occupancies, even if some costs, notably ones around health and hygiene, are rising.”

He added room service is one opportunity for increased revenue, and hoteliers need to focus on what they are.

“Every hotel is in a fight to get every pound (sterling) they can get. It is easier to do this via the customer walking in your door,” he said.

Now is the perfect time to start looking at a different type of customer and the resulting ability to trade up, he added.

Bob Silk, relationship director at Barclays Bank, said deep-dive self-analyses are most likely the way to go because lenders are jittery.

Those looking for debt must do ample homework.

“Do not make it any more difficult by guessing. Plan for the worst and hope for the best. … Banks can only afford to lend what it thinks a firm can repay. Any difference will either be the sale of assets or asking shareholders for more capital,” he said.

Edwards agreed the hospitality industry can reinvent itself if it has a clear plan and lots of data and information.

“Bankers are nervous if you do not have clarity of thought or the facts at your fingertips,” he said.

The panelists said there are other worries, and one of the main ones pertains to the United Kingdom.

“We have a Brexit risk of some degree,” Edwards said.

Summer 2020 turned out to be a good season for some hotels in the U.K., especially those in seaside and rural locations.

Urban ones generally suffered, and there does not look to be any respite over the usually lucrative run-up to Christmas with its business and corporate parties in full swing.

A potentially slow first half of 2021, plus additional tariffs stemming from Brexit, will be tough to ride out, speakers said.

“Now is time to rethink the paradigms that run our industry, to totally re-evaluate business models, scrutinize expenses at a granular level and utilize new technology that boosts efficacy and the guest experience,” Barnard said.

“Firms can use this moment of adversity to refresh their brands to be more sustainable,” he said.

Edwards said firms must be reactive, resilient and realize opportunity, which might be no different to any year or crisis large or small.

“A year ago the main issue was around Brexit and if we could get enough people,” he said.

The panelists said hoteliers can help the bottom line by analyzing benchmarking, cost and procurement optimization, enhanced solutions, expense, foreign exchange and cash management and keeping abreast of regulatory compliance, among other things.

The pitfalls in streamlining operations and costs can come about during this year of working at home and reduced staff numbers by the failure to delegate and the narrowing of the group that takes decisions.

Edwards said management needs to understand and effectively use existing systems to their full capabilities.

“More than ever, there is a real need for real-time data,” he added.

Silk said although regulations prevent furloughed workers from working and receiving furlough payments, it is necessary for firms to remain engaged with former employees in hopes of enticing them back once they can re-hire.

“Certainly as from the customer perspective, there is a lot of pent-up demand and there is also a mental-health consideration around this (for staff). If it is not a time to earn, it is a time to learn,” he said.

In terms of third-party capital entering the fray, Silk said those firms holding off from selling off the real estate of assets or wishing to enter a joint venture seem to be keeping at arm’s length the evident wall of capital looking to invest.

He said from an investor’s perspective, there are few assets coming to market, unlike the restaurant business where there have been quite a high number of insolvencies.

“Many are asking if this is the right time to sell,” he said.

Investors are having a difficult time seeing where value lies.

“People are wary of paying now and then realizing in six or nine months that they have paid too much,” Silk said.

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