The complexities of hotel budgeting during COVID-19

A budget is future oriented –an estimate of the future. It sets the framework for the company to hold its costs under a fixed limit and its revenue over a fixed limit. Budgets are prepared using historical values with estimates / assumptions about the future. It is a plan for the near future. However, leaving aside the near future, when the distant future is pretty fuzzy due to COVID-19, near paralysis can set in.

The harsh reality is that we have no 21st century tools to fight COVID-19. The methods currently in place that attempt to cage the pandemic were used to control epidemics in earlier centuries and tend to be economically disruptive. With slow availability of vaccines, the stark reality is that the world will have to work with a virus-infused environment for sometime in the future.

Sri Lanka is entering a new phase in fighting the virus while at the same time managing the re-opening of the tourism economy. This is a complex and challenging task, and quantifying the impact on the tourism economy is difficult.

The island’s  Post COVID-19 recovery strategies includes an Airport re-opening strategy (from 21^st January 2020), an on-going  ‘Safe and Secure’ Certificate awarding programme, to accommodation and other service providers and the development of a Global campaign strategy in preparation for a Global marketing campaign from 2021, among other initiatives.

COVID-19 has challenged our fundamental forecasting approach that typically relies on key past performance metrics and predictable market trends. However given the prevailing uncertainty, our assumptions pertaining to what the recovery model may look like, will rely on the following: 

• Staying afloat through 2020 would have meant moving to a zero based budget model. Putting people, product and processes through the filter and cutting close to the bone.
• Even with the news of a potential vaccine that was recently released, it’s likely that mass distribution will not be available until mid to late 2021.
• The timing of that vaccine coupled with the additional development of effective treatments and economic conditions will dictate the length of which a pandemic-based budget will be essential.
• In terms of getting back to some semblance of normal, one cannot expect the situation to improve much before 2022.
• 2022 is expected to be a stabilizing year and recovery will accelerate when proof of a negative test upon arrival is deemed sufficient and where the need to isolate for 10 -14 days with taking further tests, etc. is declared an unnecessary precaution. i.e. the complete removal of unnecessary quarantine.
• ‘Supply / demand’ dictates will then come into the frame, where demand-side recovery may be slower than the speed of supply- line recovery. As of early January, 136 hotels have been certified by SLTDA as safe and 36 have been certified as safe tier level 1. This number will undoubtedly increase with news of the airport re-opening on 21^st January 2021.
• Information as to monthly visitor expectations after that occurs is unavailable for now.
• However, if everything falls in to place, the demand trajectory should be ‘on the up’, albeit slowly, as people make up for the lost time and succumb to their pent-up desire to travel.
• Hygiene, cleanliness and safety will continue to be everyone’s top priority, as it has become a way of life in the post-COVID world.
• Profitability, in most cases, will not return before 2023. The objective here is of course, to shorten the time span from recovery to profitability. And accept that the cost of getting some business back to operational efficiency will exist.
• Considering refurbishment needs (best done during the ‘downtime;), sales including online marketing and distribution resources, competitors (in-set) developments, the budget to be developed on the basis of this question: as of which date, at which rate and how many rooms can the hotel sell when it is ready to open for business..

Ilzaf Keefahs is a freelance writer who enjoys focusing on hospitality related matters that he is passionate about, and likes to share his views with hoteliers and customers alike. He delves into the heart of hospitality to figure out both customer service and consumer trends that impact the industry.

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