Report

Hospitality – Planning for the ‘New Normal’

COVID-19 has highlighted the fact that the travel and tourism industry is exposed to a global crisis of confidence and steps need to be taken quickly to mitigate the impact on the hospitality business. Difficult decisions will need to be taken to protect assets and value, at the same time as making sure the business is in good shape to take advantage of the inevitable rebound.

With the arrival of the COVID-19 Black Swan, where you were on the curve of your own business cycle will determine your plan for the immediate future and how you eventually emerge from the crisis – Philip Bacon, from Horwath HTL Spain reviews key issues with a series of questions to determine your planning strategy for the ‘New Normal’.

Key Issues for Hospitality Business Owners

Mortgage and Debt Servicing:

Addressing obligations related to mortgage and other debts is crucial for financial stability.

Equity and Investor Returns:

Managing return expectations from private equity and institutional investors while ensuring compliance with lease and management agreements.

Capex Projects and Redundancies:

Evaluating ongoing or new capital expenditure projects and making decisions on redundancies to optimize costs.

Litigation and Valuation:

Preparing for potential litigation and reassessing business and asset valuations in light of market changes.

Government Policy and Planning Authorities:

Understanding the impact of governmental policies and engaging with planning authorities for necessary approvals and changes.

Cash Reserves:

Assessing cash reserves and determining how much can be conserved over the coming months.

Strategic Questions for Planning

Business Stability:

Were you expecting a strong performance in 2020 before the pandemic hit?

Refurbishment Programs:

Were you in the middle of or planning a refurbishment program?

Investor Relations:

Were you seeking new investors or planning to sell the business?

Business Model Obsolescence:

Was your business model becoming outdated?

Acquisition Targets:

Were you a potential acquisition target?

Capital Structure:

Did your financing or capital structure need adjustment?

Investment Negotiations:

Were you negotiating investments for growth or stabilization?

EBITDA Optimization:

Was there a need to optimize EBITDA per square meter?

Development Land:

Did you have development land seeking investors or operators?

Market Entry Plans:

Were you planning or executing market entry for a new business model or region?

Strategic Recommendations

Protect Occupancy:

Stay engaged with market trends, maintain contact with clients, and survey customer sentiments about future travel. Approach new markets proactively.

Review Business Plans:

Empower managers to make quick decisions. Develop true scenario analyses and financial contingency plans. Consider changing the business model to meet new demand trends.

Clarify Contractual Obligations:

Seek multiple legal opinions as the situation evolves. Prepare for potential litigation and update strategies accordingly.

Flexible Solutions:

Find short-term, flexible solutions with minimum commitments. Be creative and empathetic towards guests, suppliers, and local services.

Avoid Irreversible Decisions:

Avoid long-term decisions if possible. Maintaining existing relationships may be more cost-effective than finding new partners or suppliers.

Build Trust and Confidence:

Communicate clearly about strategies and plans. Train staff for reactivation and offer flexible terms to help clients and partners survive.

Critically Assess Projects:

Reevaluate timelines and budgets for development projects. Push back non-viable projects and accelerate essential ones once properties reopen.

Develop Re-Opening Plans:

Plan for post-COVID-19 reopening with heightened hygiene measures and awareness campaigns. Consider redesigning amenity packages and embracing new technologies to reduce personal contact.

Adapting to the ‘new normal’ requires a proactive and strategic approach. By addressing key issues, asking critical questions, and implementing thoughtful strategies, hospitality businesses can navigate the challenges posed by the pandemic and position themselves for future success.