The global hotel brands will need to be flexible in their relationships past the pandemic, according to a study released by Knight Frank.
The report looked to relief on fees which has supported owners, but also at the ongoing relationships within the hotel stack.
Philippa Goldstein, senior analyst – head of hotel research, Knight Frank, told us: “Whilst there is no compromise on health, hygiene and safety in terms of brand standards, the brands will need to continue to be flexible, unfixing the fixed costs for their owners. Radisson's Individual brand was an intelligent strategic move, particularly for those proven independent hotel operators, wanting to move away from relying on OTAs and benefit instead from an affiliation to a brand and their distribution system – upon entry there are no Performance Improvement Plans, enhanced flexibility and reduced fees, paying per performance – owners have time to see if the brand works for them before a more longer term commitment.”
The Individuals brand has a flexible model allowing for short-term franchise agreements of three to five years, with discounted fees and no upfront PIP required, aimed at targeting properties in more rural or destination-led locations.
The study said: “Whilst the global hotel brands have had little option but to be flexible and to support their hotel owners during the crisis, once the sector begins its recovery, the brand standards are likely to be imposed with renewed vigour. Ongoing investment in an asset is deemed critical to ensure standards and brand compliance are achieved.
“Whilst any responsible owner will be committed to investing in the asset, obtaining funds from lenders for any major capex project may well prove more challenging, at least in the short-term. Nevertheless, the well maintained hotels are those likely to perform best during periods of low demand, especially with the heightened expectations of guests in terms of hygiene, cleanliness and safety.
Goldstein added: “During a period of weaker demand and particularly during the recovery, Brands will need to work harder and smarter to ensure they deliver the support and drive enhanced returns to their franchisees and owners. In the short term the brands will need to be particularly focused on driving demand from the domestic leisure market, their distribution systems must work for the owners. As will hotel owners and operators be defined by crisis, so will be the global brands and it is highly likely that weaker brands will disappear and streamlined.”
Graham Dodd, managing director, development - UK & Ireland at Hilton, responded: “This year has presented unique challenges, but we know there is pent-up demand for travel and we are committed to delivering our customers evolving needs, and accelerating our innovations. Through our investment in technology, the diversity of our leading brands, our advanced distribution systems, as well as our Hilton Honors loyalty programme, we strive to work harder and smarter. We remain acutely focused on delivering safety, hygiene, personalised hospitality experiences and we are committed to future proofing our hotels to optimise investment return for our owners.”
The study also pointed to the value of staying open during lockdowns. For those hotels which were able to stay open during the initial lockdown, providing accommodation for Key Workers, hotel occupancies typically ranged between 20% and 30%.
With analysis showing that for a hotel to breakeven an occupancy of 15% to 25% was required - in conjunction with use of the furlough scheme - remaining open was worthwhile for many hotels.
Moreover, according to a number of operators, staying open enabled them to gain a head start over their competitors when the first lockdown ended, having had the experience of how to adjust to the new operating requirements and an understanding of where staffing and cost savings could be made.
Operating on a skeleton level of staffing enabled a resilient workforce to adapt to a new way of working. A re-invigorated and energised salesforce focused on building a base level of occupancy, but also importantly succeeded in building a greater level of forward bookings for once the lockdown ended. This enabled a trading hotel to reach a higher level of occupancy much quicker than its competitors which had remained closed.
Insight: Will the brands learn their lesson from the pandemic, with grumpy owners taking a look at the cost of keyless entry systems and wondering where the cash was going? It seems unlikely, but there had already been some nibbling on the edges, which suggest that, slowly slowly, flexibility may well be on the way.
The good news for the brands was that the future wasn’t all going to be economy brands and their awful low fees. Goldstein said: "There is still corporate demand out there and people are willing to trade up and pay more for the right product - with space, a Covid-safe location and experience all becoming increasing important drivers for corporate bookers. In previous downturns people tended to move to the budget end, but there is demand for a more expensive product - hotels have the opportunity to capture greater incremental spend per guest.”
The issue for the brands will be to hold back on trying to grab the biggest slice of the pie.