As hoteliers survey the damage wrought by COVID-19, they see hope on the horizon. Yes, emerging variants continue to threaten a full recovery, but borders have re-opened, lockdowns have lifted across most of the country and travellers are feeling the confidence to book hotel rooms. That confidence was hard-earned, as hotels have gone above and beyond to maintain health-and-safety protocols in order to re-assure guests. But now they turn their attention to wide-ranging strategies to aid in the continued recovery and long-term stability of their decimated industry, and to go from merely surviving, to thriving.
Staycations Will Stay
“The name of the game right now is ‘flexibility and adaptability’ with any strategy,” says Nicole Nguyen, director, CBRE Hotels. “In the summer there was a strong push towards staycations. And now that we’ve entered meeting and conference season, hotels are looking at how to adapt to hybrid meetings, and all the things that are still making meeting planners scratch their head as they try to put an event together.”
But business travel still has not returned to the same extent as leisure. “What we can claim to know so far, based on solid data, is that business travel came back before leisure after the previous recessions, but this time we see quite the opposite,” says Dr. Gabor Forgacs, associate professor emeritus, Ted Rogers School of Management at Ryerson University. “Even the updated cleaning-and-sanitization protocols, touchless service solutions or new labels will not create better conditions for the business traveller, who needs to better justify the return on travel expenses in the face of technology alternatives for face-to-face meetings. Those business travellers who need to earn the business of a client and are desperate to get back on the road, [are also being] offered a growing number of suitable alternatives.”
So, owners and operators have remained focused on attracting the long-stay domestic vacationers through targeted advertising and marketing campaigns, as well as via social media. “Properties were saying, ‘Come stay here, here’s what you can do while here, it’s family-friendly, outdoors, you can be safe,’” says Nguyen, who nevertheless hasn’t heard of any hotels embarking on major renovations or additions solely to attract staycationers. “A lot of resorts already have expansive grounds to hike, but that wasn’t necessarily why [travellers] went there. It was more about going to the pool. But with pools and fitness centres closed, it [became] more about promoting the things you could do instead of drawing attention to the things [you couldn’t].”
Off-loading and Re-flagging
Laura Baxter, director of Hospitality Analytics, Canada, for the CoStar Group, says hoteliers have, thanks in large part to government and lender supports, managed to hang on to their properties, but there has been some trade action. “Some hotel-ownership groups have been offloading their non-core assets,” she says. “Also, there was the sale of [Toronto’s] King Blue Hotel, and, in late September, Greenland Group Canada sold its newly developed hotel located in downtown Toronto. [That] occurred after the parent company’s debt was downgraded. The seller did generate $598,000 per key despite the market lagging in its recovery compared to other location types. And this strong pricing reinforces confidence in the long-term recovery of the area.”
Baxter also notes that the Rapid Housing Initiative, a federally backed program aimed to create 3,000 supportive housing units across the country, focused on major urban centres, was an incentive for hoteliers to sell. “There were several sell-offs in Vancouver, typically rundown [properties], but the pricing was healthy and in line with pre-pandemic values, generally speaking. So, if a hotel company was aiming to generate liquidity, that was a bit of an incentive.”
As for re-flagging, Carrie Russell, senior managing partner for HVS, says, “I wouldn’t say there is a race to do anything right now in the industry as everyone remains, to some degree, in survival mode and re-flagging can come at a cost. I will say that we expect to see more re-flagging as we come out of the pandemic and hoteliers look to find creative ways to increase cash flow.”
Russell expects any re-flagging will be driven by increasing construction costs, supply chain and inflationary pressures for new builds. “That might push investors to buy existing properties and convert them to a different brand, sometimes taking them ‘up-market’ versus building something new.”
But re-branding up-market will almost certainly require renovations and other improvements, which will necessitate a significant investment. And because of COVID-related revenue depletions, there’s just not a lot of extra cash lying around, so many properties have let their upgrades slide. Also, “You want to have a greater level of certainty of how the recovery is going to go in your particular market for your particular asset before you invest $4 or $5 million dollars to renovate and re-flag,” says Nguyen.
Re-flagging down-brand, on the other hand, usually won’t require any upgrades, but, without any kind of certainty of how the recovery will look, it also may be too much of a risk. And continued supply-chain issues could leave hoteliers stuck. “The worst-case scenario is that business volumes pick up, you’ve started a reno that has to be completed, but your FF&E is stuck on a cargo ship somewhere,” says Nguyen. “[That’s] not a workable situation.”
Some companies have actually been using their FF&E reserves to free up cash flow to pay down loans or supplement operational costs, says Baxter. As for the other option of going independent, she says that “would mean fewer fees to pay to the brand, but on the flip side there’s less support, no access to their loyalty programs or to their central reservations system, so there’s the risk of losing some of their brand loyal customers.”
Deals and Discounts
With occupancy rates last summer still hovering around the 65-per-cent mark, some hoteliers have offered special deals and discounts just to put heads in beds and feather their nests, but that has a down side. “There are thousands of hotels, and if everybody starts dropping [rates], then what are they really yielding as an individual operator?” says Nguyen. “All they’re doing is driving the base price of a commodity down and that’s not going to help when they have to pay more labour, increased cleaning protocols, et cetera. It’s a question of, ‘Does this make economic business sense? Is it going to yield me enough to make it worthwhile?’”
Also, “The choice for most consumers to travel today is not a price-driven one, it’s a confidence- and safety-driven choice. If the room’s $10 cheaper that’s great, but it’s not enough if someone is not comfortable with traveling in general.”
Bottom Line
While the climb out of the pandemic has been a slog, and while the industry remains hopeful, Dr. Forgacs splashes a bit of cool-water reality on the notion of a rapid recovery, especially with new variant, Omicron, on the rise.
“There are too many moving parts with unknown variables” to make any solid predictions, he says. “The travel industry is nowhere near pre-pandemic numbers. The changes in the way work is performed as a result of the acceptance of remote work, telecommuting and flextime will change the value of location. If [many] workers will not have to commute to downtown offices any longer, that will change traffic patterns, plus the need for downtown hotels with the same capacity. [Also] real-estate value will be impacted.”
Still, Nguyen says there’s reason for optimism. “Canada has been going in the right direction with COVID,” she says, “and hotels have given Canadians that comfort that we can get back to business as usual. But we’re still waiting for the floodgates to open, and we got a small taste of it this summer. But the taps turned off so quickly, cancellations and closures happened so fast, and the taps won’t turn on the same way. It will be more of a dripping tap. It’s slow and frustrating, but ultimately we really believe there will be forward progress.”
Written By ROBIN ROBERTS
