The third installment of Profit Talks, a series of conversations about hotel profitability in the COVID era sponsored by HotStats and Hotel Management sister site Hospitality Insights, focused on expenses and how hoteliers are managing their costs—both variable and fixed—in the operated and undistributed departments.
Michael Grove, COO and managing director, Europe, Middle East and Africa at HotStats, shared a quick update on overall costs, noting that hotels are ramping up with a “leaner and leaner” cost base in departments that predominantly had been fixed until recently. “On the sales and marketing costs, there is the element of affiliation fees, which are variable with the revenue,” he said. Labor is driving cost changes, Grove added, noting that temporary government support is still affecting hiring.
HotStats expects changes to hotels' operating model to help fuel performance ramp-up, particularly in the luxury segment where hotels generally carry a larger cost base and have been able to capitalize on leisure demand.
Related: Profit Talks: How to spark a revenue revival
Surviving the Storm
Pete Sams, COO at Davidson Hospitality Group, said his company’s first instinct when the downturn began was just to minimize damage as much as possible in the short term. “I don't think any of us had any idea what the length of time we'd be dealing with from a perspective of what needed to be done,” he said. As the downturn dragged on, the focus was on minimizing cash burn and protecting cash flow, with the team deferring expenses and “scrubbing” operations to minimize costs. “I don't think at any time in our history have we ever had this unique ... opportunity to rip it down to the studs,” Sams said. “You got a clear understanding of what the basics were [and] what you needed to do to keep the ship afloat in the short term.”
Michael Cockcroft, CFO, Europe, Middle East, Asia, Africa and group head of finance operations at IHG Hotels & Resorts, agreed that the pandemic created opportunities for challenging established norms. Team divisions are increasingly blurred, he said, recalling a recent stay at a Holiday Inn at which the same employee who served breakfast was later seen cleaning the guestrooms. Similarly, he estimated that 100 items that should be available to guests either in their rooms or in the public spaces have been removed permanently.
When the pandemic began, the team at Minor Hotel Group identified five phases they would need to go through on the road to recovery, said CFO Wayne Williams. The first, of course, was reopening closed and semiclosed hotels and resuming operations. The second was minimizing cash burn and cutting costs, and Williams noted that while hoteliers may not be able to control revenue in a pandemic environment, they have better control over costs. The next step was reducing the breakeven point that determines if a hotel should stay open or close, followed by managing the balance sheet—important to a company with “strong ownership interests,” he said. The final phase was to embrace the new normal, with some markets, like Australia, reporting occupancy of 70 to 80 percent and others, like Thailand, reaching 10 percent occupancy in May.
Gonzalo Carpintero Navarro, VP of operations EMEA and head of meeting and events transformation at Radisson Hotel Group, said his team learned how to do more with less during the downturn. "Before the pandemic, even in full-service hotels, there was this sentiment that departments were isolated,” he said. Today, multitasking is the norm—“real multitasking, not so-called multitasking”—and Carpintero expects this to help teams share more responsibilities than they did previously.
Maximizing Efficiency
Going forward, Carpintero predicted increased “industrialized” food-and-beverage operations in hotels—a direct reaction to the ongoing labor crisis, he said.
Cockcroft said accounting was another department that could see some changes, with hotels going from a team of 12 to 15 to just two or three on-property, and the remaining accounting services provided remotely using a shared platform.
Multitasking back-of-house operations has already proven helpful, Williams said, and hoteliers can find ways within their profit margins for the immediate necessities. “Focus on the areas that are really going to help support the business and drive the business,” he advised. “Eliminate some of those processes that are not really adding value.”
The Aug. 4 edition of Profit Talks will look at F&B profitability.