When to Reopen Your Hotel: The Decision to Shut Down was Hard but the Decision to Re-Open is even Harder – by Matthew R. Arrants, ISHC, CHAM
Politicians and industry leaders are struggling with when to allow hotels to open. Even when policy changes, just because hotels can reopen does not mean they should. When the pandemic hit U.S. shores, owners and operators were immediately concerned with the health and safety of their employees and guests. As occupancy levels plummeted, owners and operators scrambled to determine at what level it was more “profitable” to stay open than to close. A common range was between 8% and 12% occupancy. With that analysis, they then considered things like the duration of the lack of demand. At that point in time, hotel owners had the clarity of knowing that things were going to get worse: cases would rise, and travel would be discouraged, if not banned, by the government.
Now, more than a month later, things appear to be getting better. Cases are leveling off in some places, and governments are looking at when and how businesses can reopen. The challenge for owners is balancing the desire to resume business as soon as possible and the reality that sooner isn’t always better, particularly when dealing with a pandemic recovery. When weighing the decision of when to reopen, owners should consider the following:
- Employee Safety – Employee safety always should be paramount. The industry is working diligently to develop employee protection protocols, but lack of consistency between local governments suggests that hotel owners must develop their own criteria, such as number of regional cases and available medical resources should an employee become ill.
- Guest Safety – If employees can safely work, the next consideration becomes the ability to keep guests safe. Owners and managers have to consider how on-going operations must be revised, from instituting remote check in and erecting plexiglass barriers at points of contact to opening food and beverage outlets on a to-go basis only.
- Employee Retention – Most employees have been furloughed and are technically no longer employees. Hotels that open too late risk losing those employees to competitors or other industries. The result could be increased training costs and reduced efficiency.
- Employee Recruitment – Seasonal markets may experience a shortage of skilled labor this summer. Factors expected to impact available labor include a lack of international labor, limitations on dormitory style employee housing and generous unemployment benefits that are paying more than individuals can earn at work. Properties that open too late could face challenges in meeting their staffing needs.
- Reputation – Hotels that stayed open or those that re-open early may benefit in the eyes of customers because they’ve demonstrated a commitment to their guests and their employees. They also run the risk of being thought of as a higher risk option, especially if it becomes public knowledge that a hotel employee or guest contract the virus.
- Profitability – Effective safety protocols likely will impact profitability. In general, larger groups are more profitable due to the efficiencies that they provide. In this new era of social distancing, group sizes will be limited, so efficiencies of scale (and therefore profitability) will be reduced. In addition to lost efficiencies, direct costs are likely to increase with more frequent cleaning and sanitizing. Lastly, there is a possibility that public policy will require guest rooms to sit empty for certain periods of time and/or that hotel occupancy levels will be limited to reduce guest interaction in corridors, public space and elevators.
- PPP Loans – Many owners applied for and received loans through the Paycheck Protection Plan included in the Care Act. For portions of loans to be forgiven, employers must meet certain requirements that include putting employees back on payroll within a certain period of time of receipt of the loan.
- Demand – Perhaps the most challenging factor facing owners is forecasting demand. Many experts predict that leisure will be the first segment to return, followed by corporate and ultimately group demand. Within those segments, drive-to destinations will come back before destinations that rely heavily on airlift, such as gateway cities and islands. While these considerations provide some framework for the timing of demand, they don’t give an indication of how strong demand will be. Many guests likely will base their decision to travel on government issued guidance, which in turn will be based on the ability to test and track outbreaks. At this point, there appears to be little certainty as to when effective testing and tracking will be available. Lastly, the unstable economy compounds the challenges of projecting demand. Many consider the current situation to be far worse than the great recession of ten years ago.
The considerations outlined here are general ones that all owners face. There are more that are specific to each property. In addition, each of these considerations apply differently to every hotel. While there is no perfect re-opening date for any one property, owners will be well served by carefully weighing all the above considerations in light of the facts on the ground.