Hotels surviving in hard times
As the impact begins to bite, the majority of - if not all hotels will see occupancies slide, inevitably followed by the rapid decline in room rates. The combination of needing more money to service debt, falling occupancies and diminishing returns, created unexpectedly, will put enormous pressures on hotel owners and operators.
Where to cut costs
How hotels react to financial pressure depends to some extent on the type of hotel. In a branded hotel, the standard operating procedures (SOP’s), relative to the category of hotel will dictate changes. Regardless of declining room rates or financial worries, there can be reluctance to compromise on performance standards. Owners of brand-managed properties will face this challenge.
Staffing is one area that will immediately come under the scalpel – especially in hotels that have maintained the traditional high staff ratios found in this part of the world. Those who have operated with tight staffing policies will find little to cut.
Multi-skilling is another solution to retain standards while controlling staff size. In the short term, multi-skilling which can be put in place fairly easily can be a cost-effective means for covering unfilled staff vacancies, short-time working and unpaid leave. Socially conscious hotels will aim to minimise the necessity for further staff reductions that would other cause even more economic misery.
Another high expense factor arises from heat, light and power. Hotel’s that have installed a full energy management programme will derive the full benefit of this investment, especially in downturn times. Others will have to explore many small steps such as closing certain sections of the hotel and/or turning out lights when an area is not in use, etc – without impacting the guest.
Offsetting the high cost of imported goods which may become more expensive owing to the decline in the Rupee with local goods is another consideration – provided ofcourse that the quality of substituted items are the same, if not acceptable at the very least.
How to increase revenue
As much as the focus on cost savings, hoteliers should address the revenue side of the equation. Basically, a customised process that reports on a monthly basis on how much money has been saved and how much incremental revenue generated must be in-place. There should be both short and medium-turn targets.
Marketing strategies and sales efforts must aim at producing immediate new business. Slow reaction times and misguided strategies will hasten loss of precious market share. As higher category of hotels with superior product lines drop rates, this leads to a price war in which no one is a winner and lower rated hotels suffer further loss of revenue.
Rather than getting sucked into a ‘price war’ situation, those who hope to salvage the bottom line should adopt strategic rate structuring. A shotgun ‘one rate for all’ room pricing strategy will be tempting to some operators. Alas, that will not be sustainable for long. Knowing from where your business is coming assumes great importance at times like this. What’s the point of cutting rates to attract business that is realistically not the hotel’s target market?
Be realistic
Cost tightening without strangulation, employment strategies that boost productivity, well-thought out marketing programmes, delivery of quality service and products and proper maintenance will assist the hotel overcome these challenging times as well as position it to take full advantage when the situation improves.
Owners and operators must realise that at times like this, it is impossible to deliver a bottom line that was expected during normal times. Occupancy and RevPar should be compared with hotels in the competitive set, not against the hotel’s performance in better times.
If you can have your hotel performing level with, or preferably better than your competitors – be happy…for now!
Shafeek Wahab – Editor, Hospitality Sri Lanka, Consultant, Trainer, Ex-hotelier. |
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Hoteliers in Sri Lanka will have hardly any time to brace for the downturn that will hit with extreme swiftness after the horrific terror attacks on Easter Sunday.