“Written by: Siddharth Goenka, MD Octave Hotels & Founder, Aiosell Technologies“
The hospitality and tourism industries have been particularly hard hit by the Covid Crisis, and the dust will take a long time to settle. Since vacationing is a basic human need, leisure hotels within easy driving distance of major cities have recovered the fastest. Furthermore, since international travel has come to a complete halt, even the luxury segment of vacation destinations has seen a surge in unanticipated demand.
Business hotels, on the other hand, have taken the brunt of the damage, and estimating the extent of the damage is exceedingly difficult. With video conferencing and widespread adoption of the work-from-home model, most businesses (large and small) have reduced business travel (especially to urban centers) to less than half of pre-covid levels. The irony is that business hotels accounted for 70% of total hospitality room availability, and the majority of these hotels are facing an existential crisis due to a lack of customers and income.
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How are hotels reacting to the tsunami? Hotels may have no choice but to reinvent themselves and think beyond the box in this modern world. Every disaster brings an opportunity, and those who can swim against the current can reach the shores safely. I’ll try to share some suggestions in this article on what hotel owners can do better and how they can weather the storm.
The three foundations of the fundamental tectonic shift that will emerge for hotels as a result of this crisis are productivity, automation, and technology. Hotels can be compared to vast mega-factories with machinery and employees working long hours in shifts to produce production. Hoteliers may soon experience their own “Toyota” moment, similar to how ideas like “lean manufacturing” and “just in time production” radically changed the manufacturing industry.
Since profit can no longer be taken for granted, hotels would need to follow similar principles that concentrate on sales and cost efficiencies. To shed our extra flab and reduce spare inventory and wastages, fixed costs would need to be converted to variable costs. To optimize performance while minimizing input while maintaining guest satisfaction, we’ll need to use the right combination of machines, manpower, technology, and automation. We’ll have to make tough decisions on which business units to keep and which to shut down.
Hotels would need to carefully prepare their manpower strategy, taking into account the potential for automation in each department. There would be a downward trend in staff-to-room ratios, with a focus on doing ‘more’ with ‘less.’ Reservations and back-office teams that perform routine clerical tasks can be reduced by implementing automated reservation systems and chatbots that are connected to integrated all-in-one systems that handle all aspects of the hotel, including operations, marketing, and guest experience management.
Big, clumsy IT departments in hotels will be replaced by centralized cloud-based automated systems, which will reduce the need for backup and maintenance on a regular basis. Using new sophisticated technologies, core functions such as sales management, CRM, and online delivery can be centralized and automated, resulting in increased efficiency and yields. Through incorporating B2B marketplaces where vendors and consumers can transact directly, large sales and marketing departments that serve corporations and travel agents can be reduced.
Many hotels will need to rethink ancillary business units like restaurants, bars, spas, and gyms that have high operating costs and don’t pass the profitability litmus test. It could be more cost-effective to outsource these functions or withdraw them entirely from the product portfolio. Room service, concierge facilities, travel desk, and check-in-check-out can all be automated with the help of smartphones, tablets, kiosks, and AI-based technology to improve performance. Instead of large centralized units with high fixed costs, energy costs such as electricity and water can be reduced by using IOT devices and energy saving instruments that operate on a “use as you need” basis.
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Hotels would need to set themselves apart from the competition by assembling a lean, productive team capable of and guest satisfaction by incentivizing employees based on feedback and ratings.
The growth of online business will continue to benefit hotels by replacing fixed acquisition costs (large sales teams) with variable costs such as digital marketing. While OTAs will continue to dominate the market, hotels will concentrate their efforts on direct booking platforms, such as their own websites and booking engines, in order to cut distribution costs. Short-term valuation boosts will no longer be considered a measure for performance, so some OTAs will implement continuous discounting schemes to gain market share. This could lead to market maturity and a more equitable distribution of market share across online platforms. Meta-search networks, such as Google, will receive special attention because they will be able to guide consumer traffic directly to hotel websites instead of paying high commissions to OTAs.
Instead of chasing outlandish bets that follow a herd mentality of super-natural development, banks, PE and VC funds can pursue projects that are more sustainable, scalable, and profitable. For new ventures, asset light models such as revenue share and management contracts would be more common than outright purchase or lease models. Because of the industry’s decreased profitability, new supply will not flood the market, as new projects will be shelved or converted to less volatile asset classes. Hotels that survive the crisis may emerge as winners because they will be the last men standing when the crisis is over and returns are demanded.
For the hospitality industry, Covid-19 would be a landmark moment. Rather than writing the industry’s obituaries, we should use this opportunity to regroup, reconsider, and reset. Every crisis always produces winners, and now is our chance to “jump the Rubicon” and write our own stories.
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