Ancillary revenues key to reopening

Ephemeral Terraces

Hotels will need to look at ancillary revenues before making the decision to reopen, according to a webinar hosted by Hospa.

Hoteliers were warned to consider the “overhangs", including deferred taxes, when addressing whether they could afford to reopen.

Michael Grove, managing director EMEA, Hotstats, said: “Ancillary revenues are very important. For luxury hotels, you’re looking at up to 50% of the revenue coming from outside rooms. If you’re only looking at rooms revenue, it’s a whole different type of analysis and around 43% occupancy before break even. But at select service, rooms only is more profitable as their ancillary revenue is loss making.

“You have to be creative if the bar is closed. Room service might be dramatically positively affected if we do it properly. Time and attendance will be important when it comes to making decisions over using a large part of the hotel for a small amount of time or whether you spread meal times out.”

David Bridge, head of Hospa’s Asset Management community, suggested: “We have often talked about revenue per square metre, maybe we should look at revenue per square metre per hour.” He noted that, after the global financial crisis, “it was the occupancy that built, then it gave you the chance to grow the rate, then corporate was back, meetings was back and that gave us the opportunity to make a lot of profit. But that was all because we saw a lot of activity.  The important thing is to be out there, segment by segment and build. I can’t imagine I would go somewhere and pay a premium price for a room if I can’t use the bar and restaurant and meet up with others.

“You have to look at every individual property. For a large convention centre there’s little point in reopening, particularly if you get a lot of business overseas. Some of the provincial properties have seen the season commence and places where 80% of your guests are from the the UK, there is an opportunity. There’s going to be a lot of frustrated demand which can be caught in the UK, probably in the provinces rather than London. If you’ve got a lot of local, leisure business then you’re going to pick up more quickly.  Then what can you do with restaurants and meeting space with social distancing?”

Michael Heyward, managing director, Heyward Hospitality, said: “Most of us would expect at the very least room service. Then you need to find profitable revenue streams. Quite a lot of hotels have enormous restaurant spaces which are used for breakfasts - the space is not used for the rest of the time and this gives you a chance for the rest of the week.”

Grove was confident that “pent-up demand is there and people will want to get back to normal quite quickly, particularly in the leisure segment. Everyone has been conserving their cash, but managing it going forward is going to be a challenge, particularly with the loss of the meetings business”. However, he cautioned: “There’s an overhang on the balance sheet such as tax which has been deferred. It’s not just about the balance sheet.”

With agreement that the leisure segment would be the first to return, Grove added: “Deposits for meetings are the source of cash for many businesses, they have to think about managing that. There’s been a lot of talk about which segments will return the quickest, if your operations were focused on guests who were at risk then you may need to think closely about reopening.”

Addressing hopes for a speedy recovery, Grove said: “What history shows us is that trevpar returns from four years after the GFC, but profit is twice that. London recovered in some asset classes in 18 months - there are a lot of variables. This is recovery to pre-crisis levels, what we want to do it get back to profit. As much as looking at previous events is important, the current situation is out of scale with everything else. Looking at history is not totally useless, but it’s not a great reference point.”

Insight: Here’s a number for you: according to Grove, the sector saw a £4bn drop off in revenue over two months in March and April. Ye gads.

So now how to get it back? Trust, confidence, trust, safety, trust. But as the panel noted, the sector is ever more split between differing segments than ever before. So it’s not just a matter of reopening your luxury hotel, it’s is your luxury hotel reliant on spa business, is your luxury hotel accessible by car, are your guests retirees who are more vulnerable to the virus?

As Bridge said: “You have to empower the people on property, because all of this is local.” This is a leap for the hotel sector, which, particularly with the global brands, is not used to empowering staff to make decisions. But it is those on the ground who have the knowledge, and who know the guests - and will provide the reassurance - who are key to a successful reopening.

This is a lot. It’s easy to imagine the stakeholders sitting in shock, unable to choose whether to leap left or right. But Bridge urged bravery, commenting: “By being open, you have visibility, maybe that loss is a marketing loss.” Time to leap?