As the global economy and, with it, the hospitality industry, continues its “great reopening,” there will be a number of issues that will require ongoing focus as the impact of COVID-19 is analyzed. Here’s what’s on my mind as I consider the industry’s fate.
When Will Hotels Reopen?
There is a lot of discussion surrounding the question of “when to open,” but that is essentially a math problem and a fairly simple one at that. Hotels will reopen when the demand is sufficient for them to operate above their breakeven points on a sustained basis. Hopefully, there will be some pent-up demand that makes way into the market from some segments, as has been the case historically.
Unlike physical goods where demand can be deferred but ultimately needs to be met, in this case no one really needs to stay in a hotel twice this month because they missed a trip last month. So, the pent-up demand for intangible experiences differs materially from that of hard physical goods.
New build progression will be entirely based on the demand trajectory for a given market, just as it always has been. If nothing else, this event will slow that progression at least temporarily.
How Will Hotels Define “Clean”?
The definition of “cleanliness” as we know it has been changed, at least temporarily. The current recommended sanitation protocols are far more rigorous and expensive than ones of just last year. But, as important as the recommendations are, what the public’s perception of “clean” is will be just as big a factor.
The major global brands are currently racing to co-brand their sanitation standards with well known medical establishments or governmental units like the CDC to communicate legitimacy. A good idea. Depending on the persistence of public opinion, hotels might need a “sanitation certification.” Much like star-ratings or online reviews influence customers when looking where to stay, at this point something like this could become equally as important. Time will tell, of course, but this outcome is fairly likely. As with anything else, it is also a fascinating business opportunity.
The focus of cleanliness and sanitation has also moved out of the guest rooms and kitchens and into the public spaces. It will be revealing to see how this evolves into more contactless automation for interior spaces. Soon the normal could become contactless doors, elevators, light switches, thermostats, etc. … contactless everything that can be.
Meanwhile, UV disinfection in HVAC systems and public spaces and virus-resistant materials and surfaces might be seen more frequently. But also, of course, the establishment and buildout of a stable supply chain to provide all of the furniture, furnishings, and equipment (FFE) and supplies necessary to sustain this level of sanitation over the long term with the resilience to mitigate sudden shocks will take time.
In the intermediate term, there will be both governmental and consumer pressure to move as much of the supply chain for “critical” items to domestic or at least continental sites. This has multiple benefits, of course, but is not without cost. It is always a possibility that a consumer-driven wave of “made here” also creates significant incentives to expand that from “critical” items to “everything.” This event will cause significant rethinking of the historical global supply chain strategies.
This impacts not only day-to-day operating supplies, but FFE for both new builds and renovations. It cannot happen overnight, but it may well become a trend.
What is the Role of Federal, State, and Local Governments in Reopening Hotels?
There will be a significant rethinking of the role of government at all levels to implement forced shutdowns. As the data for the COVID-19 pandemic rolls in, there will be an ongoing debate and analysis of the level of reaction.
There should be an immediate federal action to eliminate or materially minimize a business’s liability for a COVID (or any other virus) infection occurring “at their place of business.” This is critical, and the industry trade groups, the major ownership groups, management and brand groups need to apply the full force of their legislative influence to make this happen quickly.
If it does not, it will materially change the risk profile of virtually every business that has direct consumer contact in a physical space forever and unleash a plague of lawsuits that would most assuredly change the sector attractiveness for the hotel business forever.
What is the Impact to Risk Assessment and Scenario Planning?
As the risk of a global pandemic and the associated response moves from a “black swan” event to “more likely,” risk assessment and scenario planning will realign. This will impact the investment hurdle rates, insurance cost and coverage availability, and contractual agreements across the spectrum of ownership and operations. Just as with the response to terrorist attacks against soft targets, the current pandemic may cause widespread changes.
Hotel operating companies and the major brands will take this opportunity to identify and replicate best practices regarding guest communication, cancellation policies, loyalty tier hurdle timeline adjustments, human resources policies and practices, shutdown and restart activities, interim compensation strategies, health insurance benefit structures, union collective bargaining agreements, group sales contracts, supplier agreements, and other activities into their scenario planning. If this happens again, everyone will be more prepared.
The Future Remains Bright for Hospitality
The hotel industry has been at this for a couple of thousand years. This is not some “Johnny-come-lately” industry like automobile manufacturing. We are highly resilient and exceptionally adaptable when it comes to meeting the needs of our guests, owners, and investors and will continue to be so. Although it will take everyone in every sector of the economy time to recover from this ultimately, we will.
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