What’s Next For The Hotel Industry?
Hotel occupancy has always been a good barometer of a country’s economic status. The past weeks have seen hotel occupancy plummet to shocking levels. This pandemic, and the following recession, will bring great uncertainty to the continuity of jobs and hotels. Today, most hotels are empty except for those operating as quarantine centres and those with long-staying guests. The question now is, what is next for hoteliers post COVID-19?
Drastic measures have to be taken in order for hotels to survive. For now, revenue maximization is not in the equation; costs cutting exercises are probably the only available option. This is indeed a wake-up call for many hoteliers, be it owners or management companies. They must change the way they operate in order to move forward post COVID-19.
Are hoteliers ready to change? I don’t think they have a choice. They must change.
Change may sound easy, but it requires lots of planning and determination. On top of external visible changes, internal re-alignments are essential too. Hospitality is served from the heart, and our guests can feel it. We need to make a 180-degree change in our plans.
- Renovation / Refurbishment
- If the Owner has the financial capacity to do so, this is the best time to refurbish the hotel as the opportunity cost is lower in this time.
- Typically, hotels have sinking funds for refurbishment. Use those funds and see how they can be used improve the hotel.
- While contactors are not permitted to work during MCO, they will be eager to secure jobs post COVID-19. This will be the best time to strike deals with them, and plan for refurbishments.
- Employee development
- Pay-cuts and lay-offs are inevitably put on the drawing boards. There will come a time when personal emotions have to be set aside for the sake of commercial viability. Without the company, there will be no jobs.
- In a lean structure, the key pillars for each department must be identified and preserved. One such pillar is the opportunity to pursue further academic qualifications. This is not only a good way to earn employee loyalty, but also a retention strategy to contractually bind them for several years.
- The COVID-19 crisis has caused many available online Hospitality courses to emerge in the market. Employees can enrol in these online programs to enrich their knowledge and skills.
- Common workspaces
- Hospitality is all about engaging guests. This cannot be achieved when most employees sit in their offices behind desks. Be present and visible, be up-close and personal with guests. This is the real and fundamental work of the hotelier.
- Commercially, every space within the hotel is expensive. For all the profit generated, if the profit per square feet is less than the rental rate of the neighbouring space, the operations of the hotel are simply not commercially justifiable.
- Therefore, in order to make every space count, it is most sensible to reduce non-essential, non-revenue generating spaces such as offices.
- Working environments have evolved, and the latest trend is having co-working spaces. For instance, staff’s personal drawers may be replaced with shared workstations known as “hot-desks”.
- Communal spaces such as the pantry may be used to encourage interactivity and socializing.
- Employee engagements and retention can be enhanced. This “fun and lifestyle” working environment is a huge pull factor to our Millennials workforce, which would make up 75% of our workforce in the next 5 years.
- General Manager (GMs)
- Traditionally, GMs are rotated between different properties / locations within a hotel group. It is a preferred practice and an “entitled benefit”, to gain work experience, exposure and reputation.
- Qualified and experienced Malaysian Hotel GMs are popular and sought after, as they are mostly multilingual and versatile. There are hundreds of them currently working overseas on expatriate packages.
- Many of these GMs do not intend to come back to Malaysia, as local owners are notoriously ungenerous in offering packages to fellow local Malaysians. For reasons unbeknownst to most, these local owners are willing to pay foreigner GMs much higher packages than what is normally offered outside Malaysia.
- Owners should review and consider offering our Malaysian GMs a local remuneration package, plus a percentage of Gross Operating Profit (GOP). This will encourage repatriation and make the GMs more conscious of the bottom-line results, since it affects their business too.
- Staff ratios and productivity
- Payroll is one of the highest costs in an operating hotel, and usually takes up 25%-35% of the total revenue.
- Hotels in Malaysia generally have the luxury of a staffing ratio of 0.8 to 1.5; or even 3 to 3.5 in premium luxury hotels. These numbers are high compared to hotels in developed countries, and mean that staff productivity is low in Malaysia.
- Operations optimization can be achieved at the ratio of 0.4 to 0.5. The right organization structure has to be in place before this ratio can be achieved. There are many functions that can be outsourced to reduce the headcount. This would depend on whether the hotel’s structure is vertical or horizontal, as the latter requires a higher ratio.
- We often talk about multitasking, without walking the talk. For hotel operations, multitasking mostly is practiced among the Rank & File (R&F). This is the right practice and should continue. Just like cruise ship operations, the crews play different roles on different shifts. This generates excitement and appeals greatly to the younger workforce.
- However, we often neglect the fact that multitasking should be first applied by the Department Heads. Typically, a hotel needs only 5 key departments to run day-to-day operations – Finance, Operations, Sales & Marketing, Human Resources & Maintenance; led by Hotel GM.
- Smaller hotels with less than 150 rooms can operate with the Hotel GM and 2 Department Heads – Head of Front of House (FOH), Head of Back of House (BOH). The FOH can take care of all guests’ touchpoints like Front Office, Housekeeping, F&B, Security, Marketing, while the BOH can oversee all non-guests contact areas such as Finance and other administrative functions. Most BOH staff can even work from home.
- Operations departments like Front Office and Housekeeping should explore 4-hour work shifts instead of 8. 4-hour work shifts may be more appealing and create a larger pool of workforce, as many prefer more predictable and stable working hours.
- Improve guest experience
- Many hotels put so much emphasis on Standard Operating Procedures (SOPs) that they fail to allow the staff to exhibit their natural self and interactive gestures. They should be guided, but not restricted.
- Standard phrases like “How is your flight, Sir?” and “Have a good day, Ma’am” are common in training materials, however these staffs are not “trained” to answer negative reactions from such phrases. As a result, if the conversation does not go as planned, it will end awkwardly.
- Ironically, while Artificial Intelligence seeks to make robots more “human”, we are training our staff to be more “robotic” with our SOPs. The service industry, especially hotels, must allow more natural and empathetic exchanges between humans.
- Many would agree that the service standards of Malaysia hotels are still far from desirable. While many are reluctant to give training due to the high staff turnover, we must see training as a requirement for retention and improvement.
- Hotels in Johor, for instance, are suffering staff turnover as high as 50% per year. These hotels are often regarded as training centres for Singapore hotels. If neighbouring countries are coveting Malaysian talent, there is no reason why we can’t identify and retain these trainable pools of resources ourselves.
- Distribution network and Revenue Management
- Distribution via Online Travel Agents (OTAs) is essential, especially for standalone hotels. However, OTAs are increasingly expensive and complicated with their multiple tiers of rate plans and discounts.
- There are many smaller OTA alternatives available, and hoteliers should explore these options actively.
- Revenue Management is a highly technical and sophisticated function which primarily focuses on hotel profit maximization and yielding. For a smaller scale hotel, this function can be acquired through outsourced companies which produce daily reports, monthly review, and make weekly visits to the hotels.
- Tangible vs Intangible sales
- Advance selling is a great option to consider during this period. Room sales have always been considered an intangible product. Advance selling by means of vouchers or credits can turn these into tangible products.
- Encourage advance purchases through, for instance, packages of RM999 for unlimited stays for 3 months. Packages like this appeal to the general public simply because they are unlimited.
- Operationally, vouchers’ Terms & Conditions such as same day bookings, limited free sales with a daily occupancy cap can be clearly explained and advertised. Such initiatives will definitely help with the hotel’s current tight cashflow.
- Reset to re-examine
- Some say this is a RESET time. Let’s not misconstrue this and think of resetting back to the time before Covid19. We must RESET our hotels to become better than before, to evolve and revolutionize.
- This MCO period is a time for resetting, to look at things with fresh eyes and a still mind. Re-examine the organization structure, it’s time to flatten it, cut the fats and dead wood who are not willing to embrace changes. This is the time for senior hotel executives to loosen their branded suits and ties, and get involved in operations.
We are all aware that as soon as the MCO is lifted, mass gatherings will not be allowed for the next 6-12 months. What will happen to hotel ballrooms and convention centres? We must acknowledge that hotel business will never be the same again post COVID-19. While we profess change, we must embrace and be part of change too. To my fellow hoteliers, make use of this great opportunity and be ready to rebound after this crisis, to drive this industry to greater heights.
Your humble hotelier,
Independent Hotel Consultant
Author – Hotel Tales, More Hotel Tales & Even More Hotel Tales