A perspective on the ‘new normal’ for the hospitality industry
The hospitality industry is facing a significant impact and disruption due to the pandemic. Enterprises are forced to re-imagine their business operations and strategies to adopt to the new normal. As a result, organizational priorities today include bringing back the guests to the properties safely, maintaining the safety of employees and improving the cost of operations by leveraging technology. In this blog, I attempt to provide few ideas that the hospitality industry can consider, as we prepare for the new normal.
Hospitality Industry Challenges
The hospitality industry has been enormously impacted due to the COVID-19 pandemic. Lower hotel occupancy rates are impacting the revenue per available room (RevPAR) significantly. Some of the constraints that the hospitality industry is faced with are:
- The spread of the pandemic is causing lockdown situations in many countries, resulting in cancellation of flights, cruises and other modes of transport directly impacting the source of footfall to hotels
- Economic conditions and high unemployment rates are impacting the availability of disposable income for leisure travels
- Growing safety and hygiene concerns for travelers in terms of maintaining social distancing guidelines
- Low occupancy rates in hotels is causing a cash flow crunch, leading to the inevitable furloughs for staff and associates
- Employee safety and motivation needs to be maintained to constantly deliver a high quality of service for guests
- Disruption in other industries like manufacturing and supply chain stocks are causing difficulty in procurement of room amenities
- Additional requirements to meet new regulations for safety and security
- Government restrictions on immigration and international travel
Recovery Strategy for the Hospitality Industry
As the process of recovery and revitalization begins, hospitality brands need to have a strong strategy to respond to the changing travel ecosystem. For each stage in the process, the business focus and operating goals will be different for each of the segments. The economy and midscale segment is expected to have the least impact due to lower cost of operations and long-term customers. As per the industry analysis reports from STR, short term rentals and extended stay properties showed the highest occupancy levels of 61.4%. The upscale and luxury segment will have the maximum impact, considering the higher cost of operation due to a large number of employees and quality standards. The demand patterns are likely to vary based on local conditions and hence, businesses needs to monitor them closely.
The below roadmap provides high level focus areas to strategize.
In the new normal, one needs to look ahead at new opportunities that will emerge. This ability to foresee and forecast is critical to survive and thrive.
- Stage 1 - Enable properties with higher level of safety and social distancing to help in increasing trust for guests. As the pandemic spread decreases, there will be an increasing trend in domestic leisure travel resulting in demand for hotel rooms. However, guests will need increased protection and safe distance measures for a comfortable stay.
- Stage 2 – Properties will need to enable a higher level of mandated safety standards and adhere to protocols. As demands fluctuate, dynamic pricing capabilities must be leveraged in revenue management systems to drive occupancy rates. As competition increases amongst the properties to capture the available demand, a differentiated guest experience and compelling marketing campaigns will help lock in customers.
- Stage 3 – Providing end-to-end travel experiences with redesigned operating models will help increase demand. A traveler may have additional needs beyond the basic hotel stay like quick access to healthcare, safe commute options from the hotel to different destinations, contactless food delivery and guest service, amongst others and how a hospitality brand can enable this locally as a seamless experience will actually demonstrate their commitment to ensure safety of guests.
- Stage 4 – Adapt to the new normal and re-align strategy and operations accordingly. Also, review the overall property and room capacity based on steady state bookings. Continue to nurture partnerships, re-align skills amogst the staff and fine-tune business operations.
Preparing well ahead with short, medium and long-term actions is much needed to stay focused. The business needs to review the strategies and prepare well by creating a repertoire of interventions to use in the new normal.
The actions are described below as guidelines. Hospitality brands must adopt and refine the actions based on their corporate strategy, risk appetite and the ability to financially sustain and grow. The timeline for adopting the interventions will vary accordingly.
Short term actions (0 to 3 months)
The below actions are prescribed as immediate interventions once travel resumes:
- Establish safety and hygiene guidelines and more importantly run empathetic awareness programs/campaigns to earn customer trust
- Stay connected with customers through loyalty programs
- Roll out clean technologies and supplies at properties
- Provide flexible options to guests to manage travel changes
- Identify core employees and re-skill them to handle more functions
- Stay connected with the government and health organizations for the alignment of policies and business
- Optimize costs and review the return on investments
- Reduce the infrastructure footprint based on demand
- Review cash flows and explore options to convert capital expenses to operating expenses
- Provide crisis management and response plans to handle any pandemic-related incidents
Medium term actions (3 to 6 months)
The below actions are prescribed as medium-term interventions when travel grows towards previous levels:
- Enable contact less guest experience during the stay
- Conduct customer segmentation to determine the right target groups to focus on
- Incentivize loyalty members to book ahead and generate demand
- Review travel patterns by location and determine tactical actions to win customer base
- Optimize pricing models based on new demand and supply patterns
- Provide additional payment options to guests and incentivize group bookings
- Empower employees to support the changing needs of the guests with empathy
- Continue refinements of safety and hygiene standards
- Review social media updates and take quicker actions on guest feedback to show commitment towards guest safety
- Leverage data and insights to personalize guest engagement
- Adjust employee performance incentives as conditions normalize
Long term actions (6 to 12 months)
The below actions are prescribed as long-term interventions when travel stabilizes to 2019 levels per the standards of the new normal:
- Re-align growth and operating strategy based on the new realities of travel
- Identify alternative revenue options based on possible cross-sell and up-sell opportunities
- Review the partner eco-system and engage in cost/profit sharing arrangements
- Update digital tools to re-align based on the strategy
- Create and secure contingency suppliers
- Evaluate room inventory and re-configure distribution between transient and group
- Adopt a bionic approach, combining Artificial Intelligence and human-centricity
- Continue investing in associate retention, safety and productivity tools
- Develop partnerships with healthcare, airlines and other industries
A Holistic Approach to Develop Resources
In the new normal, it is critical for hospitality brands to assess how each resource can be developed to help make smarter moves. One needs to develop the property and rooms, employees and contractors, financials and operations, loyalty and marketing programs and partnership models. Below listed are some suggestions on the key areas for investment:
This holistic approach will help in:
- Enabling properties with the right level of safety and hygiene standards, and develop a greater level of trust with customers
- Motivating staff with additional skills needed for room service, with personalized attention to guest needs and being able to carry out multiple tasks as needed
- Personalized loyalty and marketing campaigns to increase guests confidence
- Enabling partnerships to adopt new revenue generation models
- Enabling digital-driven contactless services and digital channels with the right features
Building Trust with a Clear Communication Strategy
It is also important that hotels have a clear communication strategy to engage with guests. A recent study based on 2020 Edelman Trust barometer indicates that 63% of people expect hotel brands to protect more and improve the safety and hygiene standards. Also, guests expects hotel to be a reliable source of information for them to take informed decisions.
A clear communication strategy for hospitality brands should include the following aspects
- Connect with guests and travellers through the journey : pre-stay, during stay and post stay. The experience of guests, whether good or bad, spreads quickly through social media. Hotel brands could leverage social media to provide localized and relevant communication and leverage it as a feedback loop for continuous improvement and agile realignment of operations, if needed.
- Re-assure guests by establishing safety and hygiene standards. For instance, Marriott International has established a Marriott Cleanliness Council that has set up several mandates like requiring guests to cover their faces as part of their “Commitment to clean” initiative. Hilton launched their CleanStay initiative with Lysol protection. Several other brands have replicated this strategy like IHGs Clean Promise, Wyndham’s Count on Us, Accor’s ALLSAFEetc.
- Hotel brands needs to update booking portals with clear information about the status of property, local conditions etc. Mobile technology could be leveraged for continued guest communication post the booking or during the stay for any change in conditions.
- Personalized marketing campaigns will help increase the demand for rooms. These campaigns need to be localized with the right level of information. Responses to the campaign need to be reviewed for effectiveness and realignment.
- Employees continue to be a critical element in the hospitality industry. The steps taken to assure employees of their safety will determine on how well they can serve the guests and establish strong relationships.
The travel and hospitality industry in the new normal needs to take multiple strategic and tactical steps to stay competitive. This article provides a few strategies, interventions and the essential approach needed to prepare for the new normal. Implementing safety measures to protect employees and customers, preparing for business continuity and recovery, managing overall expectations, partnering to provide value added services and leveraging data to improve focus are some of the key focus areas to survive and thrive.
The numerous paths that lie ahead give rise to new challenges as well as opportunities. Let us ‘welcome the possibilities’ of hospitality 2.0 by adopting the right strategies for processes, technology and people. If you would like to know how technology can enable this new paradigm shift for your hospitality brand, contact us to talk to our hospitality industry experts.