The impact of COVID-19 on the hospitality Industry and what to do next

 

One of the hardest hit industries during this pandemic is the hospitality and entertainment, as the travel and large gatherings have all been banned throughout the world. The primary focus for governments and businesses is the safety of their people as the COVID-19 spread across the globe and effected the economies. As this focus will inevitably continue, the implications for economic growth and dropping corporate profits have already caused a sell-off in equity markets across the world. Hospitality and leisure sectors, the first ones that experienced the extreme government regulations, are moving quickly and remain focused to understand and find a way out of the operational and financial impact for their business. Considering the weather conditions are still extreme and unpredictable, obviously the impact is huge on both revenue and supply chains. Decisions being taken to shut down hotels, restaurants, cinemas, nightclubs not to mention the entire disruptive effect of the travel ecosystem, all have a significant impact on worldwide tourism. 

It has to be mentioned that the sector showed its maturity level: in working together helping out the society where they can (making their venue available for hospital beds and hospital employees). The situation we are in also helps coming up with a new business model, delivery concepts, human capital sharing platforms and so on. The good news is that the industry in Asia already starts to pick up in this sector. This gives hope for the sector that the next months will be more productive. Stay positive, focused and alert on your financial situation.


Operational impact and mitigation
 

It’s better to forecast the cash flow for the next six months. Being realistic about the Base and Downside scenarios to understand critical points of cash and evaluating the possibility of breaches of lending covenants is important.

You must also consider possible lockdowns initiated by the government, which will cause businesses to stop operations for some time, therefore you will need significantly higher operating cash to survive.
 

What should be done
 

Payments to suppliers must be closely managed.

Minimizing the discretionary operational and capital expenditures is the key to smooth operations. Conserving cash during times will give a better chance of coming out through the pandemic stronger, so reconsider maintenance and other capital expenditures if possible.

Reevaluate your pricing models in response of the development of the market, try to advance your revenue management system.

Keep in mind to follow rules and guidelines set forth by world health organization and local government to ensure client safety in regard to COVID 19.

It will help, if your business workers will be vaccinated so that they can be available for work in good health and be less susceptible to COVID  19 detrimental health issues.

Evaluate the situation calculate how the pandemic effected your clientele in order to calculate potential income of your business, therefore you can plan ahead of how much staff and other resources you need, so that you can keep your costs to the minimum.
 

Financial impact
 

If your forecasts show that you require more funding, carefully evaluate the equity or debt funding sources that are available. 

You need to be transparent to your existing lenders, try to involve them in the mitigating procedures and plans of continuity.

Try to find lenders that are capable of moving quickly and providing relatively short-term funding. On the other hand, you may get a higher interest rates and difficult fee structure.

Governments try to help the sector, so pay attention to apply for the tax refunds and other financial relief measures.

For investors: understand if and how your operators are being affected and choose the type of contracts that are more appropriate (lease or management). 

Discuss the impact on performance with your operators and ask them about their expectations.

For operators: evaluate the impact on Occupancy and RevPAR, come up with a plan to mitigate risk.

You should have an understanding whether the loss will be permanent or just delayed. For investors, calculate the impact on the operating fees.

 

Be keen about managing your key stakeholders
 

Discuss the situation with your suppliers, funders, project managers, lenders and contractors to match the expectations and keep confidence.

Talk to your suppliers about discounts of supplies, rent etc.

If you happen to breach covenants, by communicating to your lender seek a waiver where this is clearly a short-term issue.

Maintaining morale in this difficult time is one of the most important aspects, focus on human capital management, provide clarity for your people.

Another big task is to retain the customer in the long-term. Be creative, Offer your guest different options for cancellation for example.
 

The dynamic of the situation is changing all the time, keep plans under constant review
 

This is a fast-moving environment. Ensure that you are agile enough with your actions towards the changes to the situation and impact it may have.

Prepare for a quick response to the changes outside of your normal business processes. 

In order to be able to make swift decisions, communicate and implement them, a separate structure of governance may be required.

Try to use the downtime by searching for a better business model, you can become more flexible by training your employees and trying to develop new products, giving you new opportunities.
 

What do the business owners say…
 

“We must try to recover from a financial, operational and marketing standpoint”

“The rate of occupancy in our hotels in Prague are dropping from >80% to below 15%”

“Keep away from the new investments in anticipation of market developments”

“In the times of a crisis, along with the downside effects, new opportunities emerge. We have some dry powder available”

“We opened a new bar 10 days ago and are now obliged to close it down”