Owners have already noted savings made by the brands, which it was hoped would be permanent.
On Host Hotels & Resorts’ third-quarter earnings call, CFO Sourav Ghosh told analysts: “Marriott has actually restructured and reduced above property shared services, for sales and marketing, revenue management and IT and are right now working towards reductions of their programme Shared Services fees for the following year.
“For this year, Hyatt has also reduced the fixed component of their above property IT costs by 15% and chain marketing fees by as much as 50%. And moving forward, they're really committed to making their fees more variable, so that the cost is actually tied to exactly what you were talking about the value proposition to the owner.”
Looking at hotel performance in China, which was currently operating at the level close to the pre-crisis period, with occupancy down 10% to 15% on the year, before the outbreak, Michael Grove, managing director, EMEA, HotStats, told us: “There have been discussions regarding the trend in the hospitality industry that leaner hotels will be opening in the future. There is early evidence coming from China showing that this might be the case for the undistributed departments, and undistributed payroll cost in particular.
“Admin and General and Sales and Marketing labour cost on a PAR basis decreased significantly at the height of the pandemic and started steadily increasing from April onwards. However, in the last three months, these costs have stabilised at a level of over 15% lower than last year (before the outbreak).
As for Property and Maintenance labour cost, the trend is similar even though the variance between last year's (pre-pandemic) and recent three months is at about -10%.
“We can already see a similar trend emerging in Dubai, where the occupancy returned to over 50% in November, however, undistributed labour costs are still far behind pre-pandemic levels (ie. 40-60% lower than pre-crisis levels).”
Looking at other expenses in undistributed departments, Grove described them as having been “steadily increasing since February and now reaching the pre-pandemic levels. Except for S&M expenses still showing 30% variance vs last year, most likely due to the marketing fee.”
In terms of operating costs, Grove said that at the beginning of the Covid outbreak the group had seen “a sudden spike in the costs of operating supplies (on a per occupied rooms basis), i.e. cost of servicing the guests and cleaning hotel bedrooms. This trend was apparent across all regions: Asia Pacific, Middle East and Europe. Hoteliers were challenged by the new health and safety guidelines that had to be implemented. As it turned out, the increases were temporary (the trend lasted around four to five months), and now we see the costs coming back to the pre-crisis levels. It seems that the Covid related measures have been offset by operational efficiencies.
“Similarly, the early data from China is showing us that the payroll costs (on POR basis) in distributed departments have now stabilised at a similar level as before the crisis.”
As both owners and operators looked to lower costs, there were concerns around increased spend on new technologies.
Kevin Edwards, PnK People’s managing director, commented on the growth in the use of technology, which had accelerated during the pandemic. He said: “My role is to make sure that owners get the best value from technology, and make sure that the owner gets the most amount of money.
“There are two angles: one is operations - are they using systems to reduce headcount or make their business provisions more streamlined? The second is whether they are paying above market rate for what they have.
“I talk to them about stakeholder alignment. As an owner their objectives are very different to the operator. The owner has a very specific objective in terms of making money and getting out; whether that’s today, tomorrow or in 20 years’ time. The operator has a finite agreement, wants to run things efficiently but none of them carry the passion of the exit, they’re there to service the contract for a fixed fee. A little bit extra if they do well - but is everybody aligned? Probably not.”
Insight: The bottom line has been the only line worth anything during the pandemic and it has not been as predictable as one might hope. Beleaguered owners have still been faced with bills, but no guests to pass them on to and there are fears that the brands have some new costs up their sleeves as guests return.
The brands have not been able to claim any greater a time, with head offices shedding staff and fees not rolling in.
The hope is that the two will have learned to work together to the efficiency of all by the time travel restarts.