CEOs reassess relationships with guests, owners, OTAs
The CEOs of Best Western, IHG and Radisson say recovery already has started, but to get back to 2019 levels, guests must be reassured about cleanliness and owners must be convinced to spend more on operations, sales and marketing.
BERLIN—Operating and financial tools, training and information are the areas hoteliers have to concentrate on as the industry slowly recovers from the COVID-19 crisis, according to the CEOs of three major brands.
Speaking on the CEOs panel during the “In Sync” online conference produced by Questex, InterContinental Hotels Group CEO Keith Barr, Radisson Hotel Group President and CEO Federico J. González, and Best Western Hotels President and CEO David Kong said in the process of recovery value has to be given back to owners.
Changes and costs must make sense to owners, they said.
One major shift is that with domestic markets inevitably bouncing back first, many hotels dependent on international demand will have to undergo repositioning, Barr said.
For example, a hotel in China dependent on international travel must change its demand focus, as will many hotels in the United Kingdom and U.S. if they impose quarantine periods of 14 days each on international travelers, he said.
“Domestic will recover before international, mainstream before business and luxury, and travel corridors will develop—for example, Australia and New Zealand, China and Vietnam,” Barr said.
He added that signs of recovery for IHG include its Asian Six Senses properties, which have recorded 90% occupancy, and its beach hotels in Florida and the East Coast selling out.
Kong said Best Western’s hotels in Seoul, South Korea, however, were not doing well as they are dependent on international travelers.
“Globally, we’re down 70%. It is nine times worse than we saw in the Great Recession,” Kong said, adding that he expects “nostalgic road trips (will) have a renaissance.”
On the day of the virtual panel, 19 May, Best Western U.K., the British affiliate member of Best Western Hotels, signed 26 new assets in the United Kingdom with Hallmark Hotels in a deal that will rebrand all of Hallmark’s portfolio, Kong confirmed. London-based LGH Hotels Management bought Hallmark in 2019.
The brand CEOs said relationships with owners are also likely to evolve as a result of the crisis, noting the level of dialogue and cooperation has been a highlight.
“Everyone is really focused, and that is helpful, and we have to have flexibility to change some contract terms in the short term. … We have found support and understanding, and real partnerships,” González said.
Kong said reductions of fee payments, use of loyalty points, tip sheets, sales and marketing tools and sincere conversation are the most useful contributions.
“The best thing we can do for owners is to provide operations support, as some begin to reopen. As for fees, generally these are fixed, with some being percentage-based, and of course what we’ve talked about is the fixed portion, as the percentage portion obviously is gone,” he said.
González said the industry is asking many questions.
“Owners are asking how will they manage today. When can we reopen? When will demand return? There is so much uncertainty, but we have better forecasting and are able to share information. This is something owners have always asked, but now everyone is asking what is happening everywhere,” he said.
“Some changes to contracts will happen. We can look at some ratios, but we also must look at the economic overview. Several years ago, we had a project to look at potential losses through leases, so we have that in control. If leases are good, they can be very good, and I think they are good, but both sides of the deal have to be happy,” he added.
The CEOs said with hotels challenged in both occupancy and average daily rate, thoughts are turning to what might be an asset’s break-even point and the likelihood or commonsense of opening.
“In normal times, in midscale, 40% (occupancy) might be break-even, but that would be difficult now. The big convention boxes, they’re not coming back for a while, so they have to go for business they did not have before, and that will put pressure on everyone’s (ADR),” Kong said.
Profitability will come back with guests, and a vaccine, González said.
“We’re doing what we are thinking is right, but in the best scenario, 2021 still will be slightly lower than where 2019 is,” he said.
The CEOs also stressed the need to reassure guests of cleanliness, and working with trusted third-party suppliers to add to that reassurance.
“If guests do not think the airplane is clean, they will not come to the hotel, and if they think the hotel is not clean, they won’t get on the plane. I think I speak for all three of us that we now know today more about electrostatic sprayers, UV lights, microbial surfaces and antibacterial paints than we ever thought we would,” IHG’s Barr said.
Best Western’s Kong said this would result in additional costs.
“There will be 50% to 100% more time in cleaning, although some guests might choose not to have their own spaces cleaned,” he said.
González stressed the need “to have hygiene standards the average guest will understand, and with no marketing gimmicks.”
“If additional ideas are presented by guests that we agree with, we will pay for it,” he added.
Kong said the always competitive hotel industry, with its war of words on lobby design and amenities, to give two examples, now has a new one over cleanliness.
“But that is a good thing. As soon as someone walks in they will see visual cues of cleanliness and social distancing, signs encouraging texts to make requests and visible examples of how we are looking out for the wellbeing of our associates,” he said.
González added one big issue in Europe hindering the recovery is the lack of clarity as to when borders will open and regarding policy within individual countries.
In regard to a new relationship forming between guests and online travel agencies, the CEOs said the guest ultimately is the one who makes the decision and hotel firms need to partner with OTAs to make sure hygiene standards are applicable across the industry, including in independent hotels.
“There will be more calls direct to the hotels requesting assurance as to cleanliness, so we have to have the right information available,” Barr said.
“We’re talking with owners so they work with OTAs only on the necessary customers,” he said.
Kong said pulling more guests in direct is aligned with how close hotel firms have been to their loyalty members during the crisis.
“That will pay dividends in the long run,” he said.
The CEOs said the Googles of the world might put pressure on hoteliers in order to gain more visibility.
“Against the OTAs, I hope we’re stronger against them now, but in a situation when (hoteliers) are trying to survive, you’ll take any business you can, and this is how OTAs secured their business the last time. We’re aware of that. … There is a lot of resentment (against OTAs), but how does that turn into action?” Kong said.