Hospitality Industry Should Seek Alternate Funds to Survive

Hospitality Industry Should Seek Alternate Funds to Survive

April 27, 2020

HotelPlanner CEO Tim Hentschel dishes sage advice for the tourism and hospitality sectors on how to kick-start the market post COVID-19.

By Tim Hentschel

Early 2020, the prognosis for the COVID-19 impact on the hospitality industry was relatively optimistic. Companies were looking at ways to tide over what they thought was nothing more than a “blip” and investors were seeking ways to take advantage of resulting consolidation in the travel industry.

It was not a prediction made lightly, but one that drew on statements from the authority of the World Health Organization (WHO), and extrapolated from China’s delayed updates about the situation at ground zero of the virus outbreak.

By the time COVID-19 spread to Europe and the rest of the western world, it sufficed to say that this crisis is unprecedented, and one that was akin to, if not worse than 9/11 and SARS.

Today, the assessment of the impact, from a position of HotelPlanner – with close to 20 years of experience working with hospitality brands large and small through many such situations – is that the damage will be devastating, and worse still, the industry as we know it might never be the same.

Manage Expectations for Industry Recovery

The COVID-19 outbreak has shut down the global travel industry at a time when travel is meant to peak from vacations during summer months.

The unfortunate timing has been detrimental and has exacerbated the already precarious financial position of travel companies’ cash reserves. Due to cancelled summer plans, future revenues are cut off, and billions of dollars in customer’s prepaid reservations are being refunded.

While bleak, it is important companies look to the future, and begin strategizing based on making educated predictions. It’s crucial not to expect a V-shaped recovery in the industry, and to manage expectations in order to stay relevant through changing tides.

We expect a post-COVID-19 hospitality industry being predominantly staycation-based bookings. Having just come out of a pandemic, people will seek safety in their travels and head to familiar mountains, lakes and beach resorts. We also predict corporate travel will witness a slow and arduous recovery due to safety concerns and budget issues.

Of the hardest hit, group events and corporate conferences will bear the brunt of the damage. Without a vaccine or guarantee, event coordinators will be reluctant to risk large losses if a second wave hits. On top of that, it takes time to implement new procedures and safety measures as a collective industry to restore consumer faith and safeguard against future similar crises.

With time, trust and faith in being able to travel safely might slowly rebuild, but it isn’t without effort and support from all fronts – government, organizations, companies and the public.

Adopt a Practical Approach to Government Stimulus

A crucial element in ensuring a brand can get back on its feet post-COVID-19 is to be cautious and practical when receiving government stimulus and aid.

While every little bit helps in a crisis of this magnitude, the stimulus needs some adjustments for long term success.

At this stage, stimulus requires travel and hospitality companies to take on heavy debt loads – a challenging feat for businesses with low margins.

To receive funds, companies are required to hire staff and increase headcount, but with revenues down by more than 80% in some companies, it becomes increasingly difficult to justify adding more jobs in the next couple of months. What is advised is to be level-headed when receiving government stimulus, and to assess if the company is suitable for it.

It is critical that when the industry begins its recovery, brands have the flexibility to have the capability and funds to ride on the uptick, regardless of how slow it may be.

Embrace Flexibility in Business Strategies

Naturally, the industry will get back on its feet – but as many companies are predicting, the market size will be significantly reduced due to company closures, mergers, and acquisitions. Most recently, the closure of Bookit.com, a large online travel company with over 20 years of history, has shaken all of us.

To ready your company for recovery, it is critical that your financial capability is not laden with debt due to the loans taken during the outbreak. In essence, the key thing to do is to survive the slump with as little debt as possible and use this time to construct a stronger brand for the future.

Companies like Expedia, TUI, Webjet, Airbnb, and Flight Centre Travel Group (FCTG) have chosen to opt for alternative sources of financing over government aid, in order to have the flexibility to lay off employees and cut costs wherever required. It also hints at the belief that the recovery, while inevitable, is not immediate nor quick as aforementioned – reinforcing the importance of being able to tide out future challenges.

(Ed. Image of Co-founder and CEO Tim Hentschel provided courtesy of HotelPlanner.)

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