The second 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 trends and tips to generate revenue when demand is down but on the rebound.
Michael Grove, HotStats’ managing director, EMEA, shared a quick Q1 update, noting strength in the Asia-Pacific region. While the region is mostly in positive profit territory now, he added, different countries tell different stories. China, for example, was already struggling with the pandemic in Q1 2020, so the country was the only one in the regional report to see both positive total revenue per available room and positive variance year over year at $82.8 and 72.6 percent, respectively. Other countries reported higher TRevPAR, but faced negative variance year over year. “As things start to ramp up and borders start to open, I think we can start seeing some positivity, some conferences happening and some things opening within the markets there,” Grove said.
Hotels in Europe, meanwhile, endured multiple lockdowns and closed borders, driving dependence on staycations and domestic revenue. Russia performed “very well” with domestic travel, Grove said, while Spain started to report better numbers as the weather got warmer. “Hopefully, as borders open, it’ll be well timed for the holiday season,” he said. The rest of Europe is still hovering around the breakeven point because revenues are still very low, particularly in the key cities.
Similarly, the story in the U.S. is all about staycations, Grove said. “As restrictions have relaxed slightly, the southern states and the likes of Florida have really started to see some uptick in demand,” he said. While international travel and corporate travel are certainly still down, performance seems to be turning positive again.
The next step in recovery, he said, is maximizing the segments that have been struggling. Luxury hotels had a “rough ride” last year, he said, but extended-stay “rode the storm quite well.” Now that numbers are back up, he said, luxury hotels are starting to become profitable once again.
New Demands Drive Optimism
The second portion of the hour was a panel moderated by David Eisen, HotStats director of hotel intelligence & customer solutions, who asked the three panelists what gives them confidence as the industry emerges from the downturn.
Laura Brinkmann, VP private equity, Europe, at Brookfield Asset Management, said vaccinations are the “ticket out” of the government-imposed restrictions. “Our industry is going to have to respond to that growing and pent-up demand, figuring out ways to make [travelers] feel secure,” she said. While Brookfield’s regional portfolio has “interesting numbers,” she said, she is still waiting to see how urban hotels fare as corporate travel returns. “I’m excited to see that big conferences and concerts are being piloted, but what concerns me is how quickly can we get back to some form of normalcy for these areas of our industry,” she said.
Neetu Mistry, chief commercial officer at Cycas Hospitality, agreed that leisure-focused “provincial” locations are seeing a spike in demand, and city hotels are seeing better business than they did for most of 2020.
Matthew Wilson, senior director commercial analytics at Hilton, agreed, adding that U.S. markets that historically leveraged leisure demand are recovering well—“all things considered,” he said. Florida, Arizona, Georgia, South Carolina and Texas all are performing well relative to 2019’s levels, although he doesn’t expect the nation’s hotels to reach 75 percent of 2019’s numbers by the end of this year. Average daily rate, in particular, will be a hurdle to overcome, he said.
Leisure demand is “easily” replacing some of the business demand in Hilton’s extended-stay products, Wilson said. “[We] are optimistic that that’s something that can actually be sustained and really make extended-stay and the midscale portfolio really robust and strong for the upcoming days as well.”
Brookfield traditionally has outsourced many of its food-and-beverage operations, Brinkmann said, collaborating with successful restaurant concept operators. “At the time, F&B was treated like a commodity at hotels,” she said. Now, the company is working with its F&B partners to ensure that they survive through COVID and survive the new business models that are emerging. “COVID has forced everyone to view their assets and their real estate and try to understand whether or not there are alternative routes to generate revenue, because the one and only source of revenue has dried up almost completely,” she said. “So in the adjustment period where everyone’s coming back, how do you substitute for that lack of [meetings, incentives, conventions and exhibitions] or F&B or rooms revenue?”
Mistry agreed that community collaboration is vital for mutual support, especially in a crisis. “The big part of what the larger full-service hotels can offer is not just leisure or corporate, but events,” she said. “When you’ve got social events like weddings, etc., coming on, that’s where F&B will take an interesting turn.”
“There’s going to be a lot of testing this year,” Wilson said, noting that the adjustments offer brands, operators and investors a chance to reset their traditional business models. “I really like this idea of a customer-centric mindset,” he said. “From a testing perspective, that’s what a lot of the brands will be looking for—‘Hey, let’s let’s find this opportunity to restrategize and reunderstand what the customer’s real needs are.’ And that’s definitely happening on the brand side.”
The June 24 edition of Profit Talks will examine expenses.