UK hotel industry: 60 days of reckoning

Thomas Magnuson, CEO, Magnuson Hotels, looks at the growing squeeze on the sector as a reckoning becomes imminent

The hotel sector is entering a period where the pressure will be heavier than at any point in the pandemic, after 18 months which have hardly been stress free.

The end of the job retention, or furlough, scheme is one area which came with a definite date: the end of September. As of the end of July, government data showed 1.9 million workers were still furloughed, putting almost 2 million people in an uncertain position.

The ONS reported that the hospitality sector’s vacancy rate was twice that of the economy as a whole, despite the sector creating 122,000 new jobs between March and June. Jonathan Athow, deputy national statistician at the ONS, said: “In hard-hit areas such as London, and sectors such as hospitality and arts and leisure, the numbers of workers remain well down on pre-pandemic levels.”

The return of hospitality and, according to the Institute for Public Policy Research, four people chasing every one hospitality job as furlough ends may sound like good news for the sector, but teams which have been away from the business need time to get up to speed. And with trading not at 2019 levels, many companies will be unable to bring back all of their team members, with understaffing putting service and guest experience under pressure.

The pandemic has shown the importance of maintaining a strong core multi-skilled team. No matter how willing, you cannot expect a brand-new team, inexperienced in the sector, to spring straight into seamless action on reopening. The increase in bad reviews this summer on overloaded hotels serves to illustrate what a true skill of good service is.

Magnuson Hotels was committed to retaining all employees throughout the pandemic, and to drive as much cross-training as possible. We consider our people as agile SWAT teams who can deal across every aspect of hotel operations and the guest experience. We realised that, at a time when there are limited team members available, there is plenty that can be done with smart outsourcing. So, for example, if you’re getting the majority of your guests online, you don’t need so many front desk people. Revenue management, distribution management, corporate sales, social marketing can all be effectively outsourced to transform high fixed overheads to a variable cost basis.

For those hotels spreading their reduced revenue thin, how to meet their loan obligations is one of the bigger stresses. During the pandemic, many added to their debt burden to stay afloat and there is growing concern over how long banks can ‘pretend and extend’ and when those debts will have to be called in. Recent months have seen a number of refinancing, but observers have cautioned that many come with a high cost, which is likely to bring the borrower back in front of their lenders again before too long. How long can borrowers paint a rosy picture, when a return to full trading remains uncertain?

Many hospitality businesses have been flying blind over the last 18 months, as travel regulations have changed and changed again. Summer saw a focus on the domestic market in the UK and it was hoped that September would bring a return to the lucrative corporate market.

The early signs show a return to the road for some, predominantly the small to medium-sized businesses, with the large corporates extending work-from-home directives to many of their staff as the winter is expected to see a return to higher levels of the pandemic. Those leisure guests who spent the summer looking for space on the beach are less likely to be travelling during term time, cutting hotels’ ability to fill lost corporate demand with leisure guests.

Hopeless? Time to sell your hotel and move into butchery? Not at all.

Hoteliers have been tested to the limit during this pandemic with pressure coming from all sides, pressure which is not their fault, but which could finish those businesses they have worked so hard to build up.

And the squeeze has been coming from all sides. Labour shortage, unusually spiked summer demand, supply chain disruptions, pressure from the lenders.

There’s no need to panic, travellers are still there and still eager to stay in your hotel, it’s just a matter of knowing where to find them. In any case, sustainable 52-week business can be found in one’s own hometown in the segments of government, medical, public safety and transportation. Even though large publicly traded corporations are cutting travel by up to 2/3, small to medium size domestic companies need to travel to operate. As uncertain international travel restrictions continue, domestic leisure will also continue to grow as a long-term sustainable segment. Hotel owners and their teams need to have their ears to the ground, thoroughly connected to local business and their needs, to look where others don’t for business and the answer can often come from looking more closely at your local and regional market drivers.

In our experience, long term sustainable and higher rate business can be found locally by working with local care providers and building firms, even monitoring development plans to see where demand will pop up. Where many large brands and chains rely upon expensive OTAs, our advice is to bring guests in locally first, at a lower cost to the hotelier.”

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