The first installment of Profit Talks, a series of conversations about hotel profitability in the COVID era, focused on revenue and how hotels are finding ways to turn a profit. David Eisen, HotStats director of hotel intelligence & customer solutions, started the session with a recap of the 2020 Profit Matters Global Hotel Performance Review, highlighting regions and markets as they progressed through the downturn.
Year in Review
“2020 obviously was very challenging from a revenue and profit perspective, but did better on the expense side,” Eisen said. While the world struggled with the downturn, some regions fared better than others, with the Asia-Pacific area and Middle East performing better than the U.S. and Europe—“which is basically to say that they were less negative,” he added. In the last three months of 2020, Europe reached a break-even point at 23 percent occupancy.
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In the U.S., the New York, Illinois and Washington, D.C. markets all reported negative gross operating profit per available room. “What we've seen is that the gateway markets have been disproportionately impacted [compared to] secondary markets," Eisen said. "Drive-to markets have done fairly well, as have resort markets.” The metropolitan statistical areas that depend on international travel and group business have faced “precipitous drops,” he added, while markets like Florida with lots of resorts fared better in terms of revenue and profit. Florida reported GOPPAR of $36 for the year.
Europe was the only region as a whole to have negative profit for the entirety of 2020 at -$1.11, with countries like Italy and Spain battling bad COVID outbreaks in the beginning of the year. The Middle East had a rough start, but has improved month over month. The Asia-Pacific region has been the lodestar that other markets are trying to catch up to, Eisen said. After “draconian” lockdowns limited China to domestic travel, cities like Shanghai, Beijing and even Wuhan are achieving positive total revenue per available room and GOPPAR numbers.
On a Scale of One to 10 ...
The second half of the presentation brought several hospitality leaders together to discuss the real-world logistics of turning a profit during a pandemic. Eisen asked the panelists to rate themselves on a scale of one to 10 on how bullish they were on the prospects of the overall hotel industry.
Bill Deller, SVP of hotel finance for Aimbridge Hospitality, said he was a 10. “I believe that we're resilient,” he said. “We've been around, we're in this for the long haul and we're looking forward to coming through it.” The industry will have to adapt to new changes in customers, in real estate and in the overall market itself, he acknowledged. “We've seen a strong March, and it looks like April is picking up again.”
Rob Mangiarelli, global head of asset management at Hyatt Hotels Corp., was somewhat more guarded, putting himself at a seven or eight on the scale. “I'm certainly a 10 as I think about leisure travel,” he added, noting “pent-up demand as hotels and attractions reopen. “I'm a nine on group travel coming back—we see a lot of demand in our group segment—and I'm probably a seven on corporate.” Over the last year, he said, “what we've learned is that all of our predictions are wrong.” As such, he doesn’t expect a clearer outlook until Q3 or Q4.
Mark Biondi, VP of operations strategy & analysis at Host Hotels & Resorts, said that he was “a lot closer to a 10” than he was even two months ago. “The acceleration that we've seen over the last few months has definitely given us a lot of optimism about the trajectory of recovery,” he said. While leisure travel will likely grow for several months, he cautioned that as students return to school in the fall, those numbers may fall again. “That's where we're going to really need to see that ramp-up in group and business travel to pick up the slack and continue to build on the recovery,” he said.
From an ownership standpoint, Biondi continued, Host will be focused on getting earnings before interest, taxes, depreciation and amortization back to the breakeven point, and then back to its peak levels. “What we've been very pleased with is the flexibility that our operators and the brand partners have shown in terms of really looking at the operating model [and] reducing expenses to their bare minimum so that we could reduce the cash burn as much as possible,” he said. As the recovery has progressed, these operators have kept those expenses “very much in line with the revenue,” he added, only bringing back what is absolutely necessary to service the business. “What gives me a little bit of pause is, how does that evolve as we start to move more through the middle part of the recovery, and certain costs will no doubt have to be added back?”
Deller noted that labor will be a challenge as occupancy improves and guest expectations adjust. “It's a dilemma between what the guest satisfaction is and what the owners' profitability requirements are,” he said. “We're sitting in the middle of that trying to work towards both.”
“You have to follow the customer needs and wants, and those are evolving,” Mangiarelli said. In terms of food-and-beverage programming, “What we've seen is this preference for a good grab-and-go," he said. "How can you expand your market to create more options for a customer to get in, get what they need and get out?” If a hotelier can consolidate a property’s kitchen operations, most of the dinner needs can be taken care of at the bar. Specialty restaurants should exist only in places where outside demand supports it. “If we can expand our grab-and-go options, it saves us from a labor perspective, it helps us from a cost perspective and frankly, it's faster and more efficient for the customer," Mangiarelli said.
Register here for the May 4 Profit Talks event, Revenue Revival.