The hotel industry during a pandemic: what can the UK learn from Israel when it comes to crisis?
Posted: 8th June 2020 | Share
The hotel industry during a pandemic: what can the UK learn from Israel when it comes to crisis?
The Coronavirus outbreak has turned the world on its head, causing widespread disruption to our lives, our businesses and the wider economy. Among the most gravely affected, the travel and hospitality sectors are experiencing a severe downturn, with social distancing measures leading the vast majority of hotels to close their doors to the wider public. Yet we can look to examples set by Israel and other countries to guide the industry through this trying time
The travel and hospitality sectors have become accustomed to unexpected shocks over the years. From terrorist incidents to previous disease outbreaks, tourism figures have fallen and entrepreneurs have had to get creative to ensure the survival of their businesses. Yet the current COVID-19 crisis is unprecedented. With domestic and international travel banned in most countries, the industry has come to a standstill – and stakeholders have been left wondering how best to navigate the coming months. But with talk of hotels being allowed to reopen in the UK later this year, one thing is certain – it will take some time before the industry returns to business as usual.
Hotel financing in times of COVID-19
For hotel owners, a key concern is determining how to fulfil their working capital requirements at a time when income has completely dried up. Louise Gillon, Head of Hotel Finance at Leumi UK, explains that “hotels are closed with no visibility on when they can look to reopen. This creates obvious concerns in terms of cash-flow going forward and protecting the livelihood of staff”.
Many have opted to put staff on leave in a bid to cut down on costs as much as possible – retaining only key workers to undertake core tasks – while others have closed completely pending a return to normality. But for those still at various stages in the construction process, cash-flow shortage issues are magnified, and financial providers are being asked to come up with increasingly creative solutions.
Resultantly, financial institutions have taken to postponing interest payments as a way of supporting businesses and extending working capital loans to cover shorter-term losses. In addition to this, various governments in Europe are providing financial support for corporates, in turn enabling them to continue with projects that will have temporarily slowed down due to restrictions imposed on work sites as a result of social distancing measures.
New projects too are continuing to secure finance, though in the first quarter of this year, total transaction volumes in London’s hotel market suffered a year-on-year decline of 8.8 per cent as a result of lockdown restrictions. Yet there appears to be a light at the end of the tunnel. Research from Knight Frank has shown that there could be a surge in UK investment volumes in the final months of 2020, with London’s hotel market expected to make a full recovery by the end of 2021. According to the research, the occupancy growth could be stronger in the recovery phase, leading to a rebound in revenue per available room and, ultimately, to growth in the average daily rate. Other industry commentators think that, whilst Rooms Revenue will be the first part of the business to recover, for other parts such as Meetings & Events (MICE) a full recovery is unlikely until 2022/23.
Nevertheless, Leumi UK’s CEO, Gil Karni, suggests that “the current climate presents a good opportunity for corporates with stable liquidity levels to seek new opportunities. In particular, larger chains may use this as a chance to
scope out potential M&A opportunities with smaller operators that need the stability and support of a bigger brand – with bank financing available to those shrewd enough to expand their portfolios”.
Filling the interim
Yet while hotels have options to support them through the crisis from a financial perspective, what can be done in the interim? Gillon adds that “a lot of the bank’s customers have explored opportunities to help key workers in providing accommodation and helping where they can at the current time”. For many, volunteering hotel premises that otherwise sit vacant has been a natural step. These businesses have opened their doors to key workers and vulnerable citizens to ensure they have a clean, safe and accessible space to stay in – protecting their families and ensuring the spread of disease is kept under control. In many cases, these acts enable hotels to remain in business and preserve jobs for those required for its upkeep, while others, such as Brighton’s Grand Hotel, have gone a step further, offering free accommodation to NHS staff.
Additionally, hotels are looking to creative ways of sustaining marketing activities while unable to physically operate. By taking advantage of the current upsurge in the use of video conferencing platforms and social media, for instance, hotel owners can stay in touch with customers and increase their scope by publishing content created by members of hotel staff. Through video streaming, workers can share cooking demos with hotel chefs, cocktail making classes with mixologists, and exercise and relaxation activities through spa and workout facilities, while blog posts, email and newsletters can be used to provide educational content on wellness, healthy living and remaining positive during this unrivalled time. By conducting such activities, hotels are having to rethink their business models to better encapsulate the image of their brand and build on a more engaging relationship with their customers – placing them in the best possible position to drive new bookings as the crisis comes under control and travel demand returns.
As we progress further into the year, of course, UK travel restrictions will inevitably start to lift and stay at home orders will become less restrictive. Certainly, across Asia – and increasingly in Europe – there are slow but sure signs of movement. For UK hotel owners, navigating this next period will present additional challenges, with many looking overseas to gauge the best way to proceed.
In order to attract guests post-crisis, the onus is on hotels to provide evidence of cleanliness and sanitation. Singapore’s tourism board, for instance, has launched a new clean auditing initiative that ensures hotels comply with stringent hygiene standards in order to operate. To be awarded an “SG Clean” quality mark, hotels must appoint a manager to ensure compliance with health and travel advisories, guidelines, and government orders on Coronavirus, while overseeing the meeting of hygiene criteria. Singapore has already certified many businesses – including the Grand Hyatt Singapore, where a COVID-19 outbreak occurred earlier this Spring.
In Europe, countries such as Austria and Germany are now tentatively loosening their lockdown measures too. And while specific solutions on reviving the hospitality sector are yet to be discussed, hotels are likely to reopen initially at a significantly reduced capacity, enabling activity to slowly resume while remaining compliant with social distancing measures.
In the short-term, hotels look set to be back in business long before borders fully reopen, meaning hotels will have to reconsider the types of tourist they are expecting to attract. For the UK’s larger cities, which are used to receiving
high levels of international visitors, this will likely signify a far bigger focus on domestic travel. And, with UK citizens equally unable to venture overseas, opportunities in this space will be abundant.
Of course, this won’t be the first time Brits will turn to the domestic market in times of hardship. Following Brexit, the devaluation of the pound and regular heatwaves, domestic travel in the UK has surged in recent years, with holiday goers looking for a more affordable way to take a break. The number of domestic trips in England was 2% higher in 2019 than the previous year, with British residents taking 99.1 million overnight trips. But the industry has a lot to learn when it comes to maximising the potential of this market – notably given the trepidation that will surround any sort of travel once we emerge from lockdown.
Certainly, the Coronavirus crisis has had a significant impact on airlines, with many of them now grounded due to imposed travel restrictions as well as the slump in demand among travellers. In turn, the tourism and leisure industry has come to a halt. With both international and domestic tourism currently impeded, these businesses are legally unable to operate, and operators will have to work hard to counteract the huge decline in passenger numbers once movement resumes – particularly given the trepidation that will surround such activity moving forward.
Not lacking in experience with crises, Israel leads by example when it comes to resuscitating a struggling tourism industry. With a long history of war and political issues, Israel has consistently been able to ensure that any dips in tourism remain temporary, with native travellers largely to thank. Indeed, despite being relatively small in size, domestic tourism in Israel accounted for around 17.1 million Bed Nights in 2018 – equating to 55.2% of total Bed Nights across all means of accommodation.
According to Dr. Eran Ketter, Tourism Resilience Advisor and Author, the current health crisis is very different from Israel’s past experiences. However, its readiness to quickly switch its focus between being in a crisis and coming out of one, alongside its resilient disposition and ability to think outside the box when it comes to managing businesses, has meant that tourism in the country is already at an early stage of recovery.
Key to this success is Israel’s excellent implementation of crisis management. By following basic rules – including frequent updates on tourism trends, consistent engagement with audiences and strategic advertising campaigns and creative alternatives – Israel has been able to stay ahead of the curve. For example, by changing routes on a sightseeing tour, businesses have been able to ensure the safety of customers, while marketing campaigns instilling confidence in the tourism sector have sped up the recovery process. This, in turn, has a knock-on effect on hotel occupancy, with travellers turning to local establishments as part of their stay.
In addition, there are various forms of response to the crisis that can be taken, the most important being maintaining continuous contact with clients and suppliers. Oren Drori, a Tourism and Global Marketing Expert and Consultant, agrees that the first step in softening the blow of a crisis is to “maintain the relationship with the end users, travel agents and any sort of suppliers. It is an extremely important step in potentially regaining at least an existing client list and keeping suppliers from going elsewhere”. In a more immediate attempt
to maximise hotels’ efficiency during a crisis, Drori even suggests hiring a project manager that has no previous connections with the business: “Sometimes when you are emotionally involved with the entity, decisions are skewed. In such situations, an outside party can increase efficiency. It doesn't have to be a permanent measure - just something put in place until the business is back on its feet."
Another lesson to be taken from Israel’s approach is the adaptability of business models and understanding that things that were once part of a business model pre-crisis will not necessarily be relevant during the recovery phase or further into the future. Dr. Ketter believes that “every person in the tourism industry, every investor and hotelier, constantly has to challenge their own opinions – what current characteristics of demand and value proposition can be developed for these people?”. Indeed, it is of great importance to be aware of the audience that hotels are catering to and to understand what kind of value can be added with limited assets and several restrictions still in place. As demand is expected to change at least until the end of 2020 and probably well into 2021, hoteliers have to stay proactive in their approach to meet the needs of their target audience.
Of course, the Coronavirus pandemic has affected modern society like nothing before, and safety must be considered before looking to encourage certain activities. But by following Israel’s model, the industry can look to implement creative alternatives to traditional products.
There is still uncertainty over how the future looks for the hotel sector, and when – or even whether – things will truly return to pre-COVID-19 normality. Naturally, experts are talking about “bounce back” marketing campaigns and looking to encourage movement as soon as possible. Yet it is worth keeping in mind that the process will be gradual – with social distancing measures likely to remain in place long after lockdowns are lifted.
As part of the process, hotels must remain flexible – especially when it comes to changes to existing bookings – and will need to ensure they adapt seamlessly to societal changes, digitising payment processes and documents such as menus and services in order to meet hygiene criteria and resume business more quickly. In turn, the recovery phase will very much depend on agility and hotel management’s ability to create maximum value for customers with minimal resources. Regardless of the shape the post-pandemic world takes, it is the hotel business and the people that keep it moving that will ensure the survival of the industry.
Bank Leumi (UK) plc is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.