In the new normal of uncertainty surrounding the hospitality sector, deploying a single operating budget strategy is not optimal for hotels to financially survive. The ripple effects of the COVID-19 pandemic have depleted everything from occupancy levels to air travel rates, which, in turn, has made it extremely difficult to stay profitable. The most challenging aspect of the equation is that we don’t know what lies ahead. Volatility in the market has already thrown traditional forecasting out the window, and it’s time to part ways with traditional budgeting as well.
By leveraging a proactive (instead of reactive) budget strategy tailored to the state of the pandemic, hotels can develop the financial flexibility necessary for navigating a rapidly changing industry landscape. Furthermore, this approach will make it easier when budgets are updated during the 30-60-90-day reviews.
Budget No. 1: COVID-19 Environment
For hotels, demand is undoubtedly going to be low or intermittent during peak periods of the pandemic. Even with the news of a potential vaccine that was recently released, it’s likely that mass distribution will not be available until mid to late 2021. The timing of that vaccine coupled with the additional development of effective treatments and economic conditions will dictate the length of which a pandemic-based budget will be essential.
Entering 2021, hotels will first need to continue operating with a budget that accounts for revenue lost from low occupancy levels and interchanging demand. A labor-management system that leverages automated intelligence and advanced data analysis will provide actionable insights on a variety of internal and external variables—such as labor spend versus average daily rates, average stay durations, percentage rates between hotel restaurant versus roomservice revenues, new employee/customer needs, and lift coming into the market. By utilizing advanced technology to determine these variables, hotels can then align each component of their short-term, medium-term and long-term budgets with the state of the pandemic.
Budget No. 2: Non-COVID-19 Environment
Fortunately, the hospitality sector will eventually enter its recovery phase as the pandemic begins to subside and consumer confidence returns. Hotels will need a budget that is suitable for a gradual return to business. For example, the first few months of vaccine distribution, where health-care workers and high-risk individuals with pre-existing conditions are the first to become vaccinated, we could see significant case count reductions that improve consumer confidence in leisure and business travel. In response, occupancy would rise in the span of a few weeks, causing numerous budgeting variables and operating needs to significantly change. In order to preserve service quality and guest satisfaction, hotels would need to act fast.
However, even with a new set of standards, a significant rate of COVID-19 budgeting intricacies would still exist. For example, guests will still expect heightened sanitation protocols, reduced percentage of stayover room cleaning, contactless check-ins/check-outs, automated service and extensive take-out options from the restaurant—all of which require different labor needs uncommon in a non-pandemic environment. Hotels will need to account for those variables in the long-term future, as well as in their daily operations and staff scheduling.
Budget No. 3: Hybrid
The hybrid approach intertwines elements from a pandemic and non-pandemic budget based on the specific needs of the enterprise. Hybrid budgets based on differing labor and other cost standard sets can be utilized by hotels in a market where case counts are steadily declining, but still moderate enough to prevent a complete return to normalcy. Or, they can be utilized by a company that manages multiple sites of full-service and economy-class hotels in neighboring states that require different sets of budget allocations and labor levels. A hybrid approach would also allow hotels to steadily integrate flexible scheduling models based on volatility of demand, employee availability, shift durations and cross-utilization. The hybrid budget would easily enable hotels to switch models on a weekly, monthly or quarterly basis based on the operating environment.
Regardless of the state of the world around them, a proactive budgeting strategy will be among the most critical factors for hotels to address financial constraints both during and after the pandemic. By leveraging a three-tiered approach based on differing standard sets, they can develop a dynamic set of financial resources to rely on in the uncertain future that lies ahead.
Mark Heymann is CEO of UniFocus.