Interstate Hotels: Recovery and beyond

As a manager of hotels first and foremost, Interstate earns its fees from hotel revenues and hotel profits. In light of the pandemic, Nicholas Northam says that occupancy has been at “catastrophic levels, levels that we never even believed possible.” Levels remain catastrophic amongst some of the global hotel group’s sites, with Northam noting the “enormous impact” the pandemic has had on revenue, and subsequently on profitability. “But also, there has been an enormous impact on people,” he says. “Unfortunately, we, like the majority of hoteliers, have had to make some difficult decisions with regards to our workforce, given that payroll is our single biggest cost,” he says. “However, thank goodness for furlough. There's absolutely no doubt that the furlough scheme has been enormously helpful to the hotel industry in the UK. Indeed, all of the other government support that has been out there, which we've managed on behalf of our owners, has been enormously helpful.” He adds: “We've tried to keep as many hotels open as we possibly can,” he says. “Closures have not been a route that we've particularly gone down, but we have had to close some hotels.” In addition to the closures faced, Northam says the way the group has operated hotels has also “dramatically” changed within the past year. The way the group has approached hotels “extraordinarily low” occupancies with “all of the restrictions of social distancing, PPE, and making customers and teams feel safe” have been exceptionally challenging to deal with. According to Northam, it was the speed of these changes that made it particularly difficult to manage, with Interstate having to navigate the “different machinations” of lockdowns in England, Scotland, Wales and further afield into Europe. “These countries have all had different lockdowns and different rules, particularly amongst all of the European countries within which we operate. It was a matter of juggling a lot of balls.” Nonetheless, Northam believes that the group has “weathered the storm very positively, and we feel that we've done a good job in the way that we've managed this”. Adapting operations But how exactly did hotel operations change over the course of the last year? “I’d say the majority of things have been done remotely. The way that we would traditionally run hotels was through meetings, face to face, talking to people, yet all of that disappeared overnight,” notes Northam. “All of a sudden, we're having to do everything by video call by telephone. That's been very challenging.” The senior Interstate team has not met in person in over 12 months due to border restrictions and the inability to travel. “So in terms of how we have navigated this crisis, communication has been absolutely critical,” he says. “Without a shadow of a doubt, the key has been clear, articulate communication. We set up hotlines and Q&A sessions, so that any time of the day or night, you can get an answer to any question that you may have. We tried to make people feel reassured and safe as well, because there's no doubt that, particularly in the early days, people in the hotels felt really quite scared.” Making sure PPE and safety measures were always up-to-date was also a challenge, Northam notes, adding that the world of operations “changed completely” in the first months of the pandemic. “Housekeeping also changed. We don't clean the rooms daily anymore, to minimise contact, we only clean them on departure or on request.” Implementing these changes across such a wide and diverse portfolio was a challenge in itself for Interstate. “In terms of how we instigated these changes very quickly, there was a lot of online training to show people what needed to be done,” says Northam. “Traditionally, we would run training in classrooms, but we actually pre-recorded a lot of what we have on the training portal that we use. That was a really key thing that we did early on.” The group even won the Best Implementation of Virtual Training at last month’s Springboard Virtual Awards. The early days Although closed to the public, the early days of the pandemic saw the group house essential workers. “For example, we have a hotel at the Excel in London. When the Excel became one of the nightingale hospitals, our hotel was full of doctors and nurses who were working there. I don't think the hospital ever had more than 40 beds filled there, but the medical professionals who stayed were very clued up with what was going on. And they were very respectful of it.” Northam notes that problems with guests came in the summer, when restrictions eased and staycations were on the rise. “That was more challenging, but was in many ways a useful time in terms of using it as a trial period. We learned how to work within the new guidelines, and address any challenges that arose.” He says: “Every day seemed to be so different from the other. Back in the early days, we had a daily call with the senior management team. Then the people responsible for the different regions across different countries had a daily call with all of their general managers. It was a matter of ‘right, this is what's going on, this is what we know, this is what we don't know, this is what we're trying to find out’.” Northam adds that the owners of Interstate-managed sites have been “fantastic” through the crisis. “It’s up to us to manage the hotel, so the owners do not get involved in their daily running, but we have always made sure to keep the owners very up to speed with what we were doing, and how we were doing it.” Managing the cash flow of these hotels was “so critically important” for the owners, he says. “It remains critical, especially when you're running hotels at this level of occupancy. We told the owners what we were doing and how we were doing it. I don't think we've had a single pushback from them.” Nonetheless, some owners did express their desire to close the hotel, a decision always respected by Interstate. “However,” he interestingly notes that they “learned very early on that actually it was much more effective to keep the hotels open”. Northam explains: “You need to have at least a couple of people on site at any time. A hotel is a living breathing organism. You can't just lock the door and walk away and say you’ll come back in six months time. You've got to keep things like the systems, engineering, water, all going, otherwise the place could grind to a halt, and then take three or four months to get going again at a huge expense.” Uncertainty and uncharted waters Northam explains for Interstate the uncertainty of the past year just meant “you had to be incredibly fleet of foot on a daily basis” revealing the company had teams of people whose specific job was to scour the various countries’ government websites to find out what they could and couldn’t do. He adds that staying on top of the ever-changing guidelines was “time consuming, but very worthwhile”. He says: “We made sure we got the right message across to the right hotel. So right, you're in Wales, this is what you can do. You're in Scotland, you can't do that. Whilst things changed at an ever increasing rate, we just made sure we kept on top of it and communicated it.” Another beacon of uncertainty for many this year has been Brexit. Until now, however, Interstate has not felt its impact in entirety. “Brexit kind of disappeared,” says Northam. “Having been at the forefront of everybody's mind in 2019, it became almost a non issue in 2020. I think it's back on the agenda now, but Brexit, really became a complete non-issue for us in 2020.” Looking ahead, however, Northam believes the longer term impact will be particularly felt by hoteliers in regards to the availability of labour. “A lot of people from the European Union and Eastern European countries worked in the hospitality sector, and we employed hundreds of people from abroad,” he says. “I think that as we come out of the pandemic, going into summer and autumn of this year, it is going to be quite challenging insofar as the available labour force. That is when I think we will feel the true impact of Brexit.” Cities and towns Ahead of hospitality’s initial reopening last summer, Northam says that Interstate had a “very good idea” of the hotels that were going to benefit from the burgeoning staycation market. “It became quite obvious that the regional UK was doing far better than city centres,” he says. “That has been the case throughout this pandemic, and not just in the UK, but Europe as well.” Across Interstate’s sites and the wider hotel market, he believes that major cities have suffered “disproportionately worse” than regional sites, citing Birmingham, Manchester, Glasgow, Edinburgh as all having had a “terrible time” during the pandemic. A major reason for this was in part due to public transport. “We believe that people are nervous to travel by public transport at this time, and as that is the main mode of transport into city centres, that surely had an effect on people’s decisions about travelling.” Northam also notes that city centres have a huge reliance on international travel. “London particularly relies enormously on inbound tourists, and Amsterdam, which relies almost exclusively on international travel, is having a torrid time,” he says. “It is one of the worst hit markets in Europe, but you're seeing that across Europe. The capital cities, the big cities are having the worst time of it. So we knew which hotels were going to be performing strongly and which hotels wouldn’t.” In anticipation of this, teams were shifted around across Interstate sites last summer. “We knew Blackpool was going to have a bumper summer so we geared up and we moved teams there. We had people in city centre hotels where we were still only operating at 20% occupancy, yet we knew that Blackpool was going to be operating 100%. Eastbourne, Brighton, Bournemouth - all of these places we knew were going to operate well, so we manoeuvred resources accordingly. We think that picture is going to be the same this summer.” Bringing in the customers Once more preparing to reopen, Northam believes that the “interesting challenge” facing hoteliers this year is the question of persuading customers back to hotels, and towns and cities. “The challenge is making these places, for example Birmingham, a holiday destination for those who haven’t managed to book stays in Cornwall or Devon, or other traditional vacation hotspots.. The challenge for us is how do we make these secondary destination holiday markets attractive to consumers.” He adds that the reopening of restaurants, bars, shops and indoor activities will hopefully give these stays a much-needed boost this summer. “If the theatres, the restaurants, the cafes, the bars are not open in London, you're not going to go,” he says. “Why go wandering around an empty city? But who knows what will happen. Places like Devon and Cornwall will fill up quickly with bookings, so I think people will start giving city breaks a chance again. It may take us all by surprise and actually we do see people taking city breaks as their vacation.” Whilst cities used to be the focus for a lot of hoteliers, Northam believes this focus has “really reversed” since the pandemic. But will this shift remain? “I can’t say. But big concerts, big sporting events, big conventions, these are some of the things that drive consumers to these big cities. It isn't just the restaurants or the bars or the museums. Big events tend to happen around cities, because the infrastructure is there. So I think in the fullness of time, we will see a return to that type of behaviour.” As a global business, Interstate has already begun to see how markets react and recover post-lockdown. “We operate a lot of hotels in Russia, and in the Moscow market, our hotels are back to very strong occupancies,” he says. “It is domestic travel, but restrictions have all been lifted and people are travelling around the country. That's happened remarkably quickly. So it'll be interesting to see what happens in the UK.” He believes that Western Europe is “going to be different” as its markets rely on cross border travel between countries. “It will take time to reopen those borders, but where you have a pretty strong domestic market, it will come back quickly,” he adds. The challenges ahead In terms of reopening, Northam believes that the issue that is the great unknown is the food and beverage and meetings experience. “A traditional restaurant, whether it's breakfast, lunch and dinner, will face having to reduce the amount of covers,” he says. “Buffets too, in this day and age, are going to be a big issue going forward. Hoteliers will need to adapt and adhere to food and beverage guidelines following 17 May.” Are the days of buffets gone? “Possibly, since 12 April, we are just operating table service, and ironically it's a payroll burden. Table service is significantly more costly than bar service because you need more people to facilitate the serving. That’s the area that I think is going to be the most challenging going forward.” Northam also discusses customer's expectations in regards to bedroom cleanliness. “ I believe customers will continue to want to see a seal on the door that says this room has been sanitised. Sanitisation itself will see a new level of importance. Cleaning levels may become more important than other aspects of the room itself,” he believes. In general, however, Northam believes Interstate is “very optimistic” about future recovery. “Come 17 May, assuming that hotel restrictions get lifted then, we're anticipating a strong summer,” he says. “Though beyond that,the key is really going to be how corporate travellers react this autumn. Once we get over that summer hiatus, what then happens to the corporate traveller, who is the mainstay of much of our business? Will there be conventions? Will there be meetings to attend? While we remain optimistic, that's going to be the real telling point for us. “I think there was a lot of expectation that businesses would go under, and hotels would fold. But this hasn't really happened. Don't forget so many businesses are being supported by the government at the moment, but when that support does tail off, which it has to, that will be a very interesting time.” The group’s future plans remain unchanged, with its major focus still set on expanding its portfolio. “Ironically, 2020 was the best year we've ever had in terms of bringing a number of hotels into the Interstate portfolio. We reached 100 hotels in the UK and a total of 150 across our division. It was a great year, so in 2021 we're looking to build and capitalise on that.”