Is it time to go into ‘hotel hibernation’?

The head of Hospitality Asset Management at Colliers International has given his advice following the introduction of tougher tier restrictions.

Hospitality operators and investors facing difficult decisions over whether to close their doors until next year following the Government’s introduction of tighter tier restrictions have been given a five-point plan by a leading expert.

Ben Godon, head of Hospitality Asset Management at Colliers International, has sent clients advice and operational tips aimed at supporting and guiding operators currently assessing what approach will be best for their businesses and assets.

In it he says: “In some respects, the first Lockdown was more straightforward. By that, I mean hoteliers across the country did not have a choice; they had to close. Since then, tiered regional restrictions and Lockdown 2.0 have brought an element of choice and uncertainty in that not all hotels have to close. This has meant difficult decisions have to be made by owners and operators as to whether they should stay open or close their doors to the public.

“This question of ‘if you should stay open’ is something owners and hoteliers will increasingly have to address until a vaccine programme has made a significant impact upon the spread of COVID-19. The primary driver in reaching a decision will be a financial one – do I lose more money by staying open with very little demand than if I choose to close?”

Godon – who has worked in a variety of management roles in a hospitality career spanning some three decades – sets out the five key points that he believes should be considered when deciding whether to go into ‘hotel hibernation’, and goes on to explain their significance:

1. Who are your customers?

Despite the extraordinary resurgence of the domestic leisure business – as forecast in our Hotel Recovery Index – it now looks likely that if you are reliant on tourists for your business you may need to consider closing your doors. This are for a number of reasons, including demand tapering off during the winter and additional regional restrictions. Prior to Lockdown 2.0, the UK leisure business was recovering well, with October looking strong. This trend would have continued into November, however the latest lockdown and tiered restrictions have interrupted this resurgence. In contrast, if your client base consists of corporate customers and you continue to receive bookings from business travellers, it may well be worth considering continuing to stay open, although bear in mind the fact that the Government recommends only essential business travel.

2. What facilities do you have?

With the onset of Lockdown 2.0 came the closing of all non-essential businesses. With beauty salons, spas, gyms and other leisure and restaurant / bar facilities falling into this bracket, hotels had to close some of their other key revenue departments. Not only that, conference facilities and halls are not being utilised and have largely sat empty since the first lockdown. This is expected to remain the case for some time, as it is unlikely that there will be any large business or social functions until the pandemic is over.

3. How much Government aid are you receiving?

The Government has put in place a number of support measures for businesses and chosen to continue the Furlough Scheme until March 2021 in a form still to be confirmed.  What aid you receive as a business should be factored into your decision as to whether it is beneficial to stay open or close your doors.

4. When should you reopen?

As we now return to tiered regional restrictions based upon local levels of COVID-19 infection, if you did choose to close your doors throughout Lockdown 2.0, this does not mean you should automatically look at immediately opening your hotel.

Whilst the Christmas and New Year period is normally an exceptionally busy time of year for hotels, 2020 has been anything but normal. Christmas and New Year parties are unable to go ahead even with the end of lockdown also resulting in a downturn in room bookings. This impacts not only party bookings related to hotel function rooms, but also room bookings, as the lack of large-scale festive parties will curtail the usual influx of travellers looking to stay in hotels during the season.

However, if you have a restaurant, as long as there are no local restrictions in place in December, smaller groups may still wish to celebrate the season, so it is worth considering opening your dining space. Additionally, in some hotels a number of leisure bookings which could not go ahead in November have moved to December instead of being cancelled outright. Therefore, not only are hotels retaining deposits (a cash flow benefit) these moved bookings give some a purpose in opening their doors again.

5. Where are you located?

Linked to the point above regarding your customer profile, your hotel location is a crucial factor in the decision as to whether you stay open. If you are based in a leisure destination more reliant on domestic leisure travellers, once government restrictions are softened, it may be worthwhile considering re-opening for the December festive period. However, if you are in a location with corporate and international leisure business dependency, it may be worth staying closed until early 2021. It is likely that up 50% – 60% of all hotels will have ended up shutting their doors during Lockdown 2.0. The net cash benefit of opening or closing can be marginal. Those that choose to stay open have most likely done this to avoid further ongoing disruption to their broader business, clientele and teams, rather than to make or lose marginally more money. Taking into account the points above, the key question may be not “do you make money by staying open”, but rather “do you lose less money by staying open?”